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U.K. Wage Growth Beats Forecasts But Still Lags Inflation

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  • U.K. Wage Growth Beats Forecasts But Still Lags Inflation

The squeeze on U.K. consumers continued in the second quarter, when the fastest inflation in four years ate into workers’ income.

Basic wages rose an annual 2.1 percent in the three months, lagging behind a surge in price growth driven by the pound’s decline in the wake of the Brexit vote. That left real incomes down 0.5 percent year-on-year, the Office for National Statistics said on Wednesday.

While households are still being pinched, the unexpected acceleration in wage growth and drop in unemployment pushed the pound higher. The currency climbed from the weakest level since October against the euro, and investors moved forward their expectations for a Bank of England rate hike by the end of 2018 to 89 percent, from 80 percent on Tuesday, according to short sterling.

Still, it’s a headache for BOE policy makers that wage growth has failed to sustainably pick up even with unemployment at the lowest in more than 40 years. Officials cut their forecasts for pay growth at this month’s Inflation Report, with Governor Mark Carney suggesting that “an element of Brexit uncertainty” was preventing firms from awarding bigger wage increases.

While the BOE expects the squeeze on U.K. pockets to continue for some months, it has said that inflation is near its peak and this may be as bad as it gets. For now, the feeble pay growth is weighing on consumer confidence — at its lowest level in a year — and damping demand in British stores.

With consumer spending accounting for a large part of the economy, there are broader implications. Growth slowed in the first half of the year, and economists surveyed by Bloomberg see expansion cooling to 1.5 percent this year from 1.8 percent in 2016, and losing even more speed in 2018.

Jobs Growth

Even with the weaker growth outlook, the lowest unemployment rate since 1975 should be driving up wages. There were 125,000 jobs created in the three months and the unemployment rate fell to 4.4 percent, the report said. That’s below the BOE’s equilibrium rate of 4.5 percent. In a further sign of labor-market tightness, the number of unemployed people per vacancy was at a record low of 1.9.

Total pay including bonuses rose 2.1 percent, the ONS said, also better than forecast. Adjusted for inflation, it fell 0.5 percent, slightly less than recorded the previous month.

The report also showed that productivity, as measured by output per hour, fell 0.1 percent in the three months through June, recording a second straight quarter of declines.

“It should be a real cause for concern that the U.K.’s productivity has fallen again,” said Ann Francke, chief executive of the Chartered Management Institute. “It’s becoming increasingly clear that decisive action is needed if we are to end this downward trend.”

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 Dip Amidst Middle East Tensions, Market Reaction Limited

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Oil

Oil prices fell on Monday as market participants reevaluated their risk premiums in the wake of Iran’s weekend attack on Israel, which the Israeli government said caused limited damage.

Brent crude oil, against which Nigerian oil is priced,  dipped by 50 cents, or 0.5%, to $89.95 a barrel while West Texas Intermediate (WTI) oil fell by 52 cents, or 0.6%, to $85.14 a barrel.

The attack, involving over 300 missiles and drones, marked the first assault on Israel from another country in more than three decades. It heightened concerns over a potential broader regional conflict impacting oil traffic through the Middle East.

However, Israel’s Iron Dome defense system intercepted many of the missiles, and the attack resulted in only modest damage and no reported loss of life.

Warren Patterson, head of commodities strategy at ING, noted that the market had largely priced in the potential attack in the days leading up to it. The limited damage and the absence of casualties suggest that Israel’s response may be more measured, which could help stabilize the oil market.

Iran, a major oil producer within OPEC, currently produces over 3 million barrels per day (bpd) of crude oil. The potential risks include stricter enforcement of oil sanctions and the possibility of Israeli targeting of Iran’s energy infrastructure, according to ING.

Nevertheless, OPEC possesses over 5 million bpd of spare production capacity, which could help mitigate any supply disruptions.

Analysts from ANZ Research and Citi Research have suggested that further significant impact on oil prices would require a material disruption to supply, such as constraints on shipping in the Strait of Hormuz. So far, the Israel-Hamas conflict has not had a notable effect on oil supply.

The market remains watchful of Israel’s response to the attack, which could influence the future trajectory of oil prices and broader geopolitical tensions in the region.

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Crude Oil

Nigeria’s Crude Oil Production Falls for Second Consecutive Month, OPEC Reports

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Crude Oil

Nigeria’s crude oil production declined for the second consecutive month in March, according to the latest report from the Organization of Petroleum Exporting Countries (OPEC).

Data obtained from OPEC’s Monthly Oil Market Report for April 2024 reveals that Nigeria’s crude oil production depreciated from 1.322 million barrels per day (mbpd) in February to 1.231 mbpd in March.

This decline underscores the challenges faced by Africa’s largest oil-producing nation in maintaining consistent output levels.

Despite efforts to stabilize production, Nigeria has struggled to curb the impact of oil theft and pipeline vandalism, which continue to plague the industry.

The theft and sabotage of oil infrastructure have resulted in significant disruptions, contributing to the decline in crude oil production observed in recent months.

The Nigerian National Petroleum Company Limited (NNPCL) recently disclosed alarming statistics regarding oil theft incidents in the country.

According to reports, the NNPCL recorded 155 oil theft incidents within a single week, these incidents included illegal pipeline connections, refinery operations, vessel infractions, and oil spills, among others.

The persistent menace of oil theft poses a considerable threat to Nigeria’s economy and its position as a key player in the global oil market.

The illicit activities not only lead to revenue losses for the government but also disrupt the operations of oil companies and undermine investor confidence in the sector.

In response to the escalating problem, the Nigerian government has intensified efforts to combat oil theft and vandalism.

However, addressing these challenges requires a multi-faceted approach, including enhanced security measures, regulatory reforms, and community engagement initiatives.

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Crude Oil

Oil Prices Edge Higher Amidst Fear of Middle East Conflict

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Crude Oil

Amidst growing apprehensions of a potential conflict in the Middle East, oil prices have inched higher as investors anticipate a strike from Iran.

The specter of a showdown between Iran or its proxies and Israel has sent tremors across the oil market as traders brace for possible supply disruptions in the region.

Brent crude oil climbed above the $90 price level following a 1.1% gain on Wednesday while West Texas Intermediate (WTI) hovered near $86.

The anticipation of a strike, believed to be imminent by the United States and its allies, has cast a shadow over market sentiment. Such an escalation would follow Iran’s recent threat to retaliate against Israel for an attack on a diplomatic compound in Syria.

The trajectory of oil prices this year has been heavily influenced by geopolitical tensions and supply dynamics. Geopolitical unrest, coupled with ongoing OPEC+ supply cuts, has propelled oil prices nearly 18% higher since the beginning of the year.

However, this upward momentum is tempered by concerns such as swelling US crude stockpiles, now at their highest since July, and the impact of a hot US inflation print on Federal Reserve rate-cut expectations.

Despite the bullish sentiment prevailing among many of the world’s top traders and Wall Street banks, with some envisioning a return to $100 for the global benchmark, caution lingers.

Macquarie Group has cautioned that Brent could enter a bear market in the second half of the year if geopolitical events fail to materialize into actual supply disruptions.

“The current geopolitical environment continues to provide support to oil prices,” remarked Warren Patterson, head of commodities strategy for ING Groep NV in Singapore. However, he added, “further upside is limited without a fresh catalyst or further escalation in the Middle East.”

The rhetoric from Iran’s Supreme Leader, Ayatollah Ali Khamenei, reaffirming a vow to retaliate against Israel, has only heightened tensions in the region.

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