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Pound Unlikely to Get BOE Boost as ‘Smooth’ Brexit Doubts Build

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  • Pound Unlikely to Get BOE Boost as ‘Smooth’ Brexit Doubts Build

The pound is unlikely to find any support from this week’s Bank of England meeting, according to analysts and fund managers, with officials likely to refrain from signaling tighter monetary policy amid slowing wage growth and political disorder in the U.K.

Even with inflation at a four-year high, analysts remain doubtful that Governor Mark Carney will talk up prospects of higher interest rates, like he did in May, given the inconclusive result of the June 8 election and intensifying squeeze on consumers. Last month the central bank said its rate outlook was based on the assumption of a smooth Brexit.

With the possibility of a weaker government facing the European Union at the negotiating table, the BOE might find it tougher to reiterate that view, thus making it harder for the pound and gilt yields to rise, analysts said.

  • The central bank will leave its benchmark rate unchanged at 0.25 percent, according to all 48 economists in a Bloomberg survey
  • In the May meeting, of the eight Monetary Policy Committee members only Kristin Forbes dissented, voting for an immediate increase
  • Markets see a near 45% chance of a rate increase by December 2018, MPC-dated Sonia show
    • They’re also pricing in around a 24% chance of a 25-basis-point rate increase by mid-2018, which is in contrast to the near-50 percent chance seen as recently as in March
  • GBP/USD at $1.2732, down almost 2 percent since the election, and yield on 10-year gilts at 1.02%, down 2 bps from June 8

Below is a compilation of investors’ and analysts’ expectations for the meeting, and the outlook for gilts and the pound:

Mizuho Bank (Sireen Harajli, Neil Jones)

  • The uncertainty “cast by a hung parliament will drive the Bank of England to shift toward a more dovish stance,” according to FX analyst Harajli
  • Expects BOE policy will remain steady this year with the possibility of easing in 2018
  • Speculators, who had been trimming GBP short positions over past weeks might reverse that position due to the election results “leaving GBP vulnerable to more downside risk as GBP shorts are re-built,” Harajli says, predicting sterling will reach $1.22 by year-end
  • Wednesday’s wage numbers mean the MPC could shift back to a “unanimous dovish 8-0 stance” this week or in the next meeting, according to Jones

Allianz Global Investors (Mike Riddell, money manager)

  • The BOE assumption “of a smooth transition is now looking even more unlikely” after the election
  • Over the medium to long term Riddell says he is “mildly constructive” on gilts as the risks to the U.K. economic outlook “are to the downside”
  • Riddell was bullish gilts going into the BOE meeting in May and says the central bank is likely to “be more dovish than the market seems to expect”
  • The difference between now and back in May is that the “market is not pricing in a series of rate hikes and gilt yields are a lot lower”
    • Riddell still has “a slightly bullish position but it is not a high conviction view as markets have already moved a little” in gilts

JPMorgan Asset Management (Iain Stealey, senior fixed-income portfolio manager)

  • Expects the BOE to look through what it calls “transitory inflation” which it may see as “almost a tax on the consumer so they are not going to want to do anything”
  • Stealey says he prefers to stick to their neutral gilts stance as they “would prefer to let the dust to settle”
  • “It’s very hard to buy gilts at 1% on the 10-year, likewise if the BOE aren’t moving rates higher, it is very difficult to build a case to be short gilts when you have all this uncertainty going on”
  • “Bottom line is no one really knows what the election from last week created and the BOE has no more insight than we have”

Commerzbank (Thu Lan Nguyen, FX strategist)

  • The BOE “will broadly stick to their latest assessment and at the most point out that political risks have increased”
  • There may be some “that hope that the BOE signals a higher likelihood of imminent rate hikes following the latest inflation figures. However, I think that this is counterweighted by the heightened political risk”
  • So there could be some that may be “disappointed by the fact that the BOE remains cautious, which could put some pressure on pound”
  • With the election outcome and impending EU negotiations “the probability of a negative scenario for the British economy has increased, which will force BOE to keep a more expansionary monetary policy for some time,” she says
  • Predicts sterling will fall to $1.21 by the end of this year but says it could revise that number to the upside if “the new government seeks a softer Brexit”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Crude Oil

Oil Prices Continue to Slide: Drops Over 1% Amid Surging U.S. Stockpiles

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Crude Oil

Amidst growing concerns over surging U.S. stockpiles and indications of static output policies from major oil-producing nations, oil prices declined for a second consecutive day by 1% on Wednesday.

Brent crude oil, against which the Nigerian oil price is measured, shed 97 cents or 1.12% to $85.28 per barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude slumped by 93 cents or a 1.14% fall to close at $80.69.

The recent downtrend in oil prices comes after they reached their highest level since October last week.

However, ongoing concerns regarding burgeoning U.S. crude inventories and uncertainties surrounding potential inaction by the OPEC+ group in their forthcoming technical meeting have exacerbated the downward momentum.

Market analysts attribute the decline to expectations of minimal adjustments to oil output policies by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, until a full ministerial meeting scheduled for June.

In addition to concerns about excess supply, the market’s attention is also focused on the impending release of official government data on U.S. crude inventories, scheduled for Wednesday at 10:30 a.m. EDT (1430 GMT).

Analysts are keenly observing OPEC members for any signals of deviation from their production quotas, suggesting further volatility may lie ahead in the oil market.

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Energy

Nigeria Targets $5bn Investments in Oil and Gas Sector, Says Government

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Crude Oil - Investors King

Nigeria is setting its sights on attracting $5 billion worth of investments in its oil and gas sector, according to statements made by government officials during an oil and gas sector retreat in Abuja.

During the retreat organized by the Federal Ministry of Petroleum Resources, Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, explained the importance of ramping up crude oil production and creating an environment conducive to attracting investments.

He highlighted the need to work closely with agencies like the Nigerian National Petroleum Company Limited (NNPCL) to achieve these goals.

Lokpobiri acknowledged the challenges posed by issues such as insecurity and pipeline vandalism but expressed confidence in the government’s ability to tackle them effectively.

He stressed the necessity of a globally competitive regulatory framework to encourage investment in the sector.

The minister’s remarks were echoed by Mele Kyari, the Group Chief Executive Officer of NNPCL, who spoke at the 2024 Strategic Women in Energy, Oil, and Gas Leadership Summit.

Kyari stressed the critical role of energy in driving economic growth and development and explained that Nigeria still faces challenges in providing stable electricity to its citizens.

Kyari outlined NNPCL’s vision for the future, which includes increasing crude oil production, expanding refining capacity, and growing the company’s retail network.

He highlighted the importance of leveraging Nigeria’s vast gas resources and optimizing dividend payouts to shareholders.

Overall, the government’s commitment to attracting $5 billion in investments reflects its determination to revitalize the oil and gas sector and drive economic growth in Nigeria.

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Commodities

Palm Oil Rebounds on Upbeat Malaysian Exports Amid Indonesian Supply Concerns

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Palm Oil - Investors King

Palm oil prices rebounded from a two-day decline on reports that Malaysian exports will be robust this month despite concerns over potential supply disruptions from Indonesia, the world’s largest palm oil exporter.

The market saw a significant surge as Malaysian export figures for the current month painted a promising picture.

Senior trader David Ng from IcebergX Sdn. in Kuala Lumpur attributed the morning’s gains to Malaysia’s strong export performance, with shipments climbing by a notable 14% during March 1-25 compared to the previous month.

Increased demand from key regions like Africa, India, and the Middle East contributed to this impressive growth, as reported by Intertek Testing Services.

However, amidst this positivity, investors are closely monitoring developments in Indonesia. The Indonesian government’s contemplation of revising its domestic market obligation policy, potentially linking it to production rather than exports, has stirred market concerns.

Edy Priyono, a deputy at the presidential staff office in Jakarta, indicated that this proposed shift aims to mitigate vulnerability to fluctuations in export demand.

Yet, it could potentially constrain supply availability from Indonesia in the future to stabilize domestic prices.

This uncertainty surrounding Indonesian policies has added a layer of complexity to palm oil market dynamics, prompting investors to react cautiously despite Malaysia’s promising export performance.

The prospect of Indonesian supply disruptions underscores the delicacy of global palm oil supply chains and their susceptibility to geopolitical and regulatory factors.

As the market navigates these developments, stakeholders remain attentive to both export data from Malaysia and policy shifts in Indonesia, recognizing their significant impact on palm oil prices and market stability.

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