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Emerging Market Turmoil Boosts Safe-haven Euro Zone Debt, Italy Suffers

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Emerging Markets
  • Emerging Market Turmoil Boosts Safe-haven Euro Zone Debt, Italy Suffers

Most euro zone bond yields fell on Friday, with German borrowing costs at three-week lows as turmoil in major emerging markets Turkey and Russia boosted demand for safe-haven government debt.

The exception was Italy. Its bond yields, already pushed up by concerns about upcoming budget talks, faced additional upward pressure as risk aversion gripped world markets.

Turkey’s lira hit the latest in a string of record lows on Friday on the back of a deepening rift with the United States, worries about its own economy and lack of action from policymakers.

Markets were also unnerved by a report in the Financial Times that the European Central Bank was worried about European banks’ exposure to the country.

The ECB, which declined to comment on the report, is said to be chiefly concerned about Spain’s BBVA, Italy’s UniCredit and France’s BNP Paribas.

Shares in these banks fell more than 3 percent each, while the euro tumbled to its lowest levels in more than a year .

“People looking at things this morning are much more aware that there is central contagion risk,” said David Owen, chief European economist at Jefferies in London.

“Having said that, what’s happening in EM (emerging markets)is leading to risk-free rates being bid for and that includes Treasuries, Bunds and gilts.”

Most 10-year euro zone bond yields fell 2-3 basis points on the day.

Yields on 10-year German bonds, regarded as one of the safest assets in the world, hit three-week lows of 0.334 percent and were set for the biggest one-week fall in seven weeks.

U.S. and British 10-year bond yields fell to their lowest levels in almost three weeks .

“There is a clear safe-haven bid for bonds given concerns about the so-called bank-sovereign doom loop,” said DZ Bank strategist Andy Cossor.

Berenberg European economist Carsten Hesse said in a note that while a full blow Turkish banking crisis would have some negative repercussions for euro zone banks with a large exposure to Turkey, the overall exposure of the euro zone banking sector seems too small to spark a “significant” euro zone crisis.

European stock markets fell 0.9 percent. In addition to Turkey’s woes, a slide in the Russian rouble this week on threats of new U.S. sanctions and nagging worries about a global trade war have jolted world markets.

Italian bonds felt the ripple effects as investors steered clear of risky assets, while domestic political worries also weighed on sentiment.

Italy should scrap a clause in its constitution obliging it to run a balanced budget, deputy Prime Minister Luigi Di Maio said, adding the government was not yet working on the matter.

Markets fear the big spending plans of the new anti-establishment coalition will push up Italy’s already high debt levels and put it on a collision course with the EU and its fiscal rules.

Italian 10-year bond yields were up 5 bps at 2.95 percent , pushing the gap over German peers to 260 bps from 253 bps late on Thursday.

Italian debt insurance costs hit the highest level in two months.

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 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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