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Emerging Markets in Focus This Week: South Africa, Brazil, Peru

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Emerging Markets
  • Emerging Markets in Focus This Week: South Africa, Brazil, Peru

With trader caution on the rise after an index of developing-nation currencies had its biggest weekly decline since March, attention will turn to a string of central bank decisions this week.

South Africa is foremost among the countries whose central banks are due to decide on interest rates, after the rand registered the biggest decline among emerging markets in the five days through Friday. Hungary, Kenya, the Philippines, Taiwan and Indonesia will also announce policy decisions this week.

Elsewhere, investors will be watching Peruvian President Pedro Pablo Kuczynski’s next move after his finance minister lost a confidence vote. Brazil will also be in the spotlight as lawmakers seeks to press ahead with pension reforms even as President Michel Temer faces fresh corruption charges.

South Africa

The central bank’s monetary policy committee will probably cut the benchmark lending rate to 6.5 percent on Sept. 21, according to the median estimate of 20 economists surveyed by Bloomberg. That would be the second consecutive 25 basis-point reduction.

The rand ended four straight weeks of gains last week, its longest rising streak this quarter. The currency’s one-week implied volatility climbed 2.3 percentage points in the five days through Friday, the most in emerging markets after Indonesia’s rupiah.

Indonesia

Bank Indonesia’s policy review on Friday will be more closely watched than usual to see if the central bank doubles down on last month’s surprise cut. Inflation has slowed for the past two months and the rupiah rallied to a 10-month high against the dollar last week.

Brazil

Traders will be watching to see if the latest charges against Temer will delay a vote on pension reform. The president is facing a second set of criminal charges after the chief public prosecutor, Rodrigo Janot, on Thursday formally accused Temer of obstruction of justice and criminal conspiracy, saying he and several of his closest aides took kickbacks worth 587 million reais ($189 million) from government contracts.

Peru

Peruvian President Pedro Pablo Kuczynski is poised to form a new cabinet after Fernando Zavala, the cabinet chief and finance minister, lost a confidence vote on Friday. Investor concern, as measured by the sol’s one-month implied volatility, rose the most this month as the political crisis cast doubt on the president’s ability to push through his reform agenda.

Hungary

Hungary’s central bank is likely to use its next policy meeting to cut the overnight deposit rate deeper into negative territory, reduce access to its benchmark instrument and impose other monetary easing measures, according to a Bloomberg survey. The forint weakened the most since April last week.

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.

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Crude Oil

Oil Prices Steady Ahead of Crucial OPEC+ Meeting on Output Cuts

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Crude Oil - Investors King

Oil prices stabilized in Asian trading on Monday as markets turned their attention to an upcoming OPEC+ meeting, where producers are expected to discuss maintaining voluntary output cuts for the remainder of the year.

This critical meeting, scheduled for June 2, will be held online following a brief postponement, OPEC announced last Friday.

The Brent crude oil, against which Nigerian crude oil is priced, stood at $82.36 a barrel, while the U.S. West Texas Intermediate (WTI) crude oil rose by 28 cents to $78 per barrel.

The stabilization in prices comes after a week of declines with Brent ending last week about 2% lower and WTI losing nearly 3%.

This downturn was influenced by minutes from the Federal Reserve’s recent meeting, revealing that some officials are open to further tightening interest rates if deemed necessary to control persistent inflation.

Market activity is expected to be relatively subdued on Monday due to public holidays in the United States and the United Kingdom.

However, anticipation is building around the OPEC+ meeting, where producers will deliberate on extending the current voluntary output cuts of 2.2 million barrels per day into the second half of the year. Sources within OPEC+ suggest that an extension is likely.

Sugandha Sachdeva, founder of Delhi-based research firm SS WealthStreet, expressed confidence in the potential extension, stating, “Oil futures are expected to maintain today’s gains due to expectations of the cuts being extended.”

She also highlighted the influence of upcoming U.S. Producer Price Index (PPI) data on market movements, which will shape the Federal Reserve’s approach to potential rate adjustments.

Combined with an additional 3.66 million barrels per day of production cuts valid through the end of the year, these measures account for nearly 6% of global oil demand.

OPEC remains optimistic about continued growth in oil demand, forecasting an increase of 2.25 million barrels per day for the year, while the International Energy Agency (IEA) anticipates slower growth of 1.2 million barrels per day.

Analysts at ANZ noted that they will be closely monitoring gasoline usage as the Northern Hemisphere enters summer, a peak season for driving holidays.

They commented, “While U.S. holiday trips are expected to hit a post-COVID high, improved fuel efficiency and EVs could see oil demand remain soft,” but added that this could be offset by rising air travel.

This week’s market dynamics will also be influenced by the U.S. personal consumption expenditures (PCE) index, due to be released on May 31.

The PCE index is regarded as the Federal Reserve’s preferred measure of inflation, and its findings could provide further indications of the central bank’s interest rate policies.

In a related development, Goldman Sachs has revised its forecast for 2030 oil demand upwards to 108.5 million barrels per day from the previous 106 million barrels per day.

The investment bank also projects peak oil demand to occur by 2034 at 110 million barrels per day, followed by a prolonged plateau until 2040.

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Crude Oil

Nigeria’s Oil Sector Sees $16.6bn Investment Boost, Plans $20bn Expansion

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Steel sector

Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, announced on Monday that approximately $16.6 billion in investments have been committed over the past year.

This significant influx of capital marks a period of rejuvenation for the oil sector following years of stagnation caused by policy inconsistencies and the delayed passage of the Petroleum Industry Act.

Lokpobiri shared these updates during a briefing in Abuja, where he highlighted the achievements in the oil sector since President Bola Tinubu assumed office on May 29, 2023.

The minister emphasized that the government’s efforts to create a more investment-friendly environment have paid off, attracting substantial foreign and domestic investments.

Rekindling Investor Confidence

“One of our main objectives has been to create an environment where investments can thrive,” Lokpobiri stated. “Today, I am pleased to announce that our efforts have rekindled investor confidence in the sector.”

He pointed to notable investments, including $5 billion and $10 billion commitments in deepwater offshore assets, and a $1.6 billion investment in oil and gas asset acquisition.

The surge in investments is attributed to a series of roadshows in the United States and Europe, which successfully showcased Nigeria’s potential and the government’s commitment to sectoral reforms.

This renewed global interest is also evident in the ongoing bid rounds for new assets.

Production Increase and Strategic Initiatives

A significant achievement since President Tinubu took office is the increase in crude oil production.

“When we took office, production was at approximately 1.1 million barrels per day, including condensates,” Lokpobiri reported. “Today, I am proud to report that we have increased our production to approximately 1.7 million barrels per day, inclusive of condensates.”

To achieve this increase, the government has undertaken several strategic initiatives.

These include revamping redundant oil assets, continuous engagement with international oil companies, and resolving industry disputes.

Efforts to protect critical assets and reduce oil theft have also been intensified, with collaborations between private security firms and government agencies leading to a sharp decline in crude oil theft.

Upcoming $20bn Expansion Deal

In addition to the recent investments, Lokpobiri revealed that the Federal Government is on the verge of finalizing a $20 billion deal aimed at further boosting oil and gas production.

During a meeting with Olivier Le Peuch, CEO of Schlumberger Limited, Lokpobiri disclosed that negotiations with major investors are nearing completion. “Investments of over $20 billion are coming. One company alone will invest $10 billion,” he noted.

This deal, once consummated, will represent one of the largest single investments in Nigeria’s oil sector in recent history, promising to significantly enhance the country’s production capacity and economic growth.

Ongoing and Future Projects

Lokpobiri also highlighted the commencement of production from Oil Mining Leases (OMLs) 13 and 85, managed by Sterling Exploration and First E&P respectively.

These projects are expected to produce an average of 20,000 and 40,000 barrels per day, further bolstering Nigeria’s output.

This period of renewed investment and increased production is a testament to the government’s commitment to optimizing the nation’s oil and gas assets.

President Tinubu’s administration aims to sustain this momentum, ensuring continued growth and stability in the sector.

Government Transparency and Accountability

In line with President Tinubu’s directive for transparency, all ministers have been tasked with presenting their performance reports to the public.

The Minister of Information and National Orientation, Mohammed Idris, announced that the first-anniversary celebrations will include sectoral media briefings by the 47 federal ministers, starting on Thursday.

These briefings are designed to keep Nigerians informed about the government’s achievements and ongoing initiatives.

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Energy

Oil Prices Stable Amid Federal Reserve’s Talk of Interest Rate Tightening

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Crude oil - Investors King

In a landscape where global oil markets often sway with the slightest economic shifts, stability can be a rare commodity.

However, amidst discussions from the U.S. Federal Reserve regarding potential interest rate adjustments, oil prices have remained surprisingly steady.

Brent crude oil, against which Nigerian oil is priced, gained 10 cents, or 0.1% rise to $82.00 a barrel, while U.S. West Texas Intermediate (WTI) crude oil edged up 7 cents to $77.64 a barrel.

The Federal Reserve’s release of minutes from its recent policy meeting unveiled deliberations on the possibility of raising interest rates to combat persistent inflationary pressures.

The minutes stated, “Various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.”

Such discussions surrounding interest rates can have a profound impact on oil demand. Higher interest rates typically result in increased borrowing costs, potentially constraining funds that could otherwise stimulate economic growth and, consequently, oil consumption—particularly in the United States, the world’s largest oil-consuming nation.

Additionally, the Energy Information Administration’s report indicating a 1.8 million barrel rise in U.S. crude stocks last week, as opposed to an anticipated draw of 2.5 million barrels, added a layer of complexity to the market dynamics.

This unexpected increase in inventory weighed on market sentiment, despite ongoing efforts to balance supply and demand.

Furthermore, global physical crude markets have been grappling with subdued refinery demand and abundant supply, exacerbating the pressure on oil prices.

Analysts from Citi highlighted recent market softness, attributing it to weaker data encompassing rising oil inventories, tepid demand, and refinery margin weakness, compounded by the looming risk of production cuts.

Russia’s announcement that it surpassed its OPEC+ production quota in April due to “technical reasons” added another dimension to the market narrative.

The Russian Energy Ministry revealed plans to present a compensation strategy to the Organization of the Petroleum Exporting Countries (OPEC) Secretariat shortly.

Against this backdrop, anticipation mounts ahead of the OPEC+ meeting scheduled for June 1, where crucial decisions regarding production cut levels will be deliberated.

Despite uncertainties surrounding the meeting’s outcome, industry experts foresee challenges in significantly tightening the market in the near term, potentially leading to a rollover of existing voluntary cuts.

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