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Worsening Italian Crisis Batters European Markets

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  • Worsening Italian Crisis Batters European Markets

A worsening political crisis in Italy provoked a second day of selling on European markets, with the euro cut to an 11-month low, stocks punished and short-term borrowing costs surging for the government in Rome.

Investors fear that repeat elections – which now seem inevitable in the euro zone’s third-largest economy – may become a de facto referendum on Italian membership of the currency bloc and the country’s role in the European Union.

Short-dated Italian bond yields — a sensitive gauge of political risk — soared as much as 150 basis points IT2YT=RR to their highest since late 2013 in their biggest move in 26 years [GVD/EUR].

The euro dropped towards $1.15 EUR=EBS for the first time in close to a year, down 0.8 percent on the day. Against the Swiss franc EURCHF=, it fell to 1.15 francs. [/FRX]

Stocks in Milan slid 2.6 percent on the main index .FTMIB after a 2.1 percent fall on Monday. Bank shares .FTIT8300 slumped another 5 percent after losing 4 percent in the previous session, bruised by the sell-off in government bonds, a core part of bank portfolios.

“It is just a slide, and as the slide continues, you ask where is the end,” said Saxo Bank’s head of FX strategy, John Hardy. Global contagion is a risk, he said, with the benchmark U.S. S&P 500 stocks index .SPX also close to breaching some key support levels. [.N]

Hardy recalled a promise made in 2012 by European Central Bank President Mario Draghi to keep the euro intact.

“If this continues for another couple of sessions, I think you will have to see some official (European) response. A ‘whatever it takes’ kind of moment,” he said.

Adding to the uncertainty, Spanish Prime Minister Mariano Rajoy will face a vote of confidence in his leadership on Friday.

Spain’s bond-yield spread with Germany also went to its widest in 11 months at 144 bps ES10YT=RR. Madrid’s IBEX bourse .IBEX was down almost 2.5 percent [.EU].

Asia flinched, too. Japan’s Nikkei .N225 slipped 0.6 percent and Chinese and Hong Kong shares ended 0.6 to 0.7 percent in the red. [.T][.SS] U.S. markets pointed to losses later, with the S&P500 E-Mini futures for the ESc1 down 0.7 percent [.N].

The dollar was up against almost all major currencies except the safe-haven Japanese yen JPY=. [/FRX]

The U.S. currency is heading for its best month in a year and a half .DXY – a move that is hurting many emerging market countries that borrow in dollars. EM stocks hit a five-month low while South Africa’s rand led the currency retreat as it dropped ZAR=D3 1.5 percent. [EMRG/FRX]

“The biggest contributor is fear of a euro zone crisis, and the spillover from that into demand for safe-haven currencies,” said Koon Chow, an FX strategist at UBP.

PLAY IT SAFE

Away from Europe, the focus was on the on-again, off-again U.S.-North Korean summit and the U.S.-China trade relationship.

An aide to North Korean leader Kim Jong Un arrived in Singapore on Monday night, Japanese public broadcaster NHK reported, and the White House said a “pre-advance” team was traveling to the city to meet the North Koreans.

The reports indicate that planning for the summit, initially scheduled for June 12, is moving ahead even though President Donald Trump called it off last week. A day later, Trump said he had reconsidered, and officials from both countries were meeting to work out details.

In another sign that investors were flocking to safer bets, though, the euro hit a 11-month low versus the yen with a 1.5 percent drop to 125.10 yen EURJPY=EBS, its biggest slide in four months.

Elsewhere in bonds, U.S. 10-year Treasury yields fell to six-week lows of 2.883 percent US10YT=RR after a U.S. holiday on Monday. The climb in Italy’s yields – move inversely to price – meant they were above the U.S. equivalent for the first time in over a year.

Analysts are awaiting U.S. inflation data later in the week, which could provide clues to future interest rate moves before the Federal Reserve policy meets next month.

Italian Prime Minister-designate Carlo Cottarelli will see the President Sergio Mattarella at 4:30 p.m. (1430 GMT), the president’s office said in a statement.

Mattarella effectively vetoed a coalition government of the anti-establishment 5-Star Movement and League party at the weekend. He has asked Cottarelli to form a stop-gap government to lead the country to early elections instead. Cottarelli is expected to announce his cabinet after the meeting.

Oil prices remained under pressure from expectations that Saudi Arabia and Russia would pump more crude, even as U.S. oil output rises. [O/R]

U.S. crude futures CLc1 tumbled to six-week lows and looked set for a fifth straight day of declines. The July contract was last down 1.3 percent at $67.02 a barrel.

Brent crude futures LCOc1 edged up 0.5 percent after dropping to $74.49 per barrel on Monday, their lowest in about three weeks. They were last at $75.82.

Spot gold XAU was barely changed at $1,298.01 an ounce.

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

NNPCL CEO Optimistic as Nigeria’s Oil Production Edges Closer to 1.7mbpd

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Crude Oil

Mele Kyari, the Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPCL), has expressed optimism as the nation’s oil production approaches 1.7 million barrels per day (mbpd).

Kyari’s positive outlook comes amidst ongoing efforts to address security challenges and enhance infrastructure crucial for oil production and distribution.

Speaking at a stakeholders’ engagement between the Nigerian Association of Petroleum Explorationists (NAPE) and NNPCL in Lagos, Kyari highlighted the significance of combating insecurity in the oil and gas sector to facilitate increased production.

Kyari said there is a need for substantial improvements in infrastructure to support oil production.

He noted that Nigeria’s crude oil production has been hampered by pipeline vandalism, prompting alternative transportation methods like barging and trucking of petroleum products, which incur additional costs and logistical challenges.

Despite these challenges, Kyari revealed that Nigeria’s oil production is steadily rising, presently approaching 1.7mbpd.

He attributed this progress to ongoing efforts to combat pipeline vandalism and enhance infrastructure resilience.

Kyari stressed the importance of taking control of critical infrastructure to ensure uninterrupted oil production and distribution.

One of the key projects highlighted by Kyari is the Ajaokuta-Kaduna-Kano (AKK) gas pipeline, which plays a crucial role in enhancing gas supply infrastructure.

He noted that completing the final phase of the AKK pipeline, particularly the 2.7 km river crossing, would facilitate the flow of gas from the eastern to the western regions of Nigeria, supporting industrial growth and energy security.

Addressing industry stakeholders, including NAPE representatives, Kyari reiterated the importance of collaboration in advancing Nigeria’s oil and gas sector.

He emphasized the need for technical training, data availability, and policy incentives to drive innovation and growth in the industry.

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Nigeria to Achieve Fuel Independence Next Month, Says Dangote Refinery

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Dangote Refinery

Aliko Dangote, the Chairman of the Dangote Group and Africa’s wealthiest individual has announced that Nigeria is poised to attain fuel independence by next month.

Dangote made this assertion during his participation as a panelist at the Africa CEO Forum Annual Summit held in Kigali.

The announcement comes as a result of the Dangote Refinery’s ambitious plan, which aims to eliminate the need for Nigeria to import premium motor spirit (PMS), commonly known as petrol, within the next four to five weeks.

According to Dangote, the refinery already operational in supplying diesel and aviation fuel within Nigeria, possesses the capacity to fulfill the diesel and petrol requirements of West Africa and cater to the aviation fuel demands of the entire African continent.

Dangote expressed unwavering confidence in the refinery’s capabilities, stating, “Right now, Nigeria has no cause to import anything apart from gasoline and by sometime in June, within the next four or five weeks, Nigeria shouldn’t import anything like gasoline; not one drop of a litre.”

He said the refinery is committed to ensuring self-sufficiency in the continent’s energy needs, highlighting its capacity to significantly reduce or eliminate the need for fuel imports.

The Dangote Refinery’s accomplishment marks a pivotal moment in Nigeria’s quest for energy independence. With the refinery’s robust infrastructure and advanced technology, Nigeria is poised to become a net exporter of refined petroleum products, bolstering its economic stability and reducing its reliance on foreign imports.

Dangote’s remarks underscored the transformative potential of the refinery, not only for Nigeria but for the entire African continent.

He emphasized the refinery’s role in fostering regional energy security, asserting, “We have enough gasoline to give to at least the entire West Africa, diesel to give to West Africa and Central Africa. We have enough aviation fuel to give to the entire continent and also export some to Brazil and Mexico.”

Dangote further outlined the refinery’s broader vision for Africa’s economic advancement and detailed plans to expand its production capacity and diversify its product range.

He highlighted initiatives aimed at promoting self-sufficiency across various sectors, including agriculture and manufacturing, with the ultimate goal of reducing Africa’s dependence on imports and creating sustainable economic growth.

Dangote’s vision for a self-reliant Africa resonates with his long-standing commitment to investing in the continent’s development.

He concluded his remarks by reiterating the refinery’s mission to transform Africa’s energy landscape and drive socio-economic progress across the region.

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Crude Oil

Oil Prices Surge Amidst Political Turmoil: Brent Tops $84

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Oil prices - Investors King

The global oil market witnessed a significant surge in prices as political upheaval rocked two of the world’s largest crude producers, Iran and Saudi Arabia.

Brent crude oil, against which Nigerian oil is priced, rose above $84 a barrel while West Texas Intermediate (WTI) oil climbed over the $80 threshold.

The sudden spike in oil prices followed a tragic incident in Iran, where President Ebrahim Raisi and Foreign Minister Hossein Amirabdollahian lost their lives in a helicopter crash.

Simultaneously, apprehensions over the health of Saudi Arabia’s king added to the geopolitical tensions gripping the oil market.

Saudi Arabia stands as the leading producer within the Organization of the Petroleum Exporting Countries (OPEC), while Iran ranks as the third-largest.

Despite these significant developments, there are no immediate indications of disruptions to oil supply from either nation.

Iranian Supreme Leader Ayatollah Ali Khamenei reassured that the country’s affairs would continue without interruption in the aftermath of the tragic event.

However, the geopolitical landscape remains fraught with additional concerns, amplifying market volatility.

In Ukraine, drone attacks persist on Russian refining facilities, exacerbating tensions between the two nations.

Moreover, a China-bound oil tanker fell victim to a Houthi missile strike in the Red Sea, further fueling anxiety over supply disruptions.

Warren Patterson, head of commodities strategy for ING Groep NV in Singapore, remarked on the market’s reaction to geopolitical events, noting a certain desensitization due to ample spare production capacity within OPEC.

He emphasized the need for clarity from OPEC+ regarding output policies to potentially break the current price range.

While global benchmark Brent has experienced a 9% increase year-to-date, largely driven by OPEC+ supply cuts, prices had cooled off since mid-April amidst easing geopolitical tensions.

Attention now turns to the upcoming OPEC+ meeting scheduled for June 1, with market observers anticipating a continuation of existing production curbs.

Despite the surge in oil prices, there’s a growing sense of bearishness among hedge funds, evidenced by the reduction of net long positions on Brent for a second consecutive week.

This sentiment extends to bets on rising gasoline prices ahead of the US summer driving season, indicating a cautious outlook among investors.

As the oil market grapples with geopolitical uncertainties and supply dynamics, stakeholders await further developments and policy decisions from key players to navigate the evolving landscape effectively.

The coming weeks are poised to be critical in determining the trajectory of oil prices amidst a backdrop of geopolitical turmoil and market volatility.

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