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EMERGING MARKETS: Trade Woes Knock Emerging Stocks, Currencies Get Reprieve

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Emerging Markets
  • EMERGING MARKETS: Trade Woes Knock Emerging Stocks, Currencies Get Reprieve

Emerging stocks flirted with fresh 14-month lows on Thursday amid escalating trade tensions, though many battered currencies took a breather after days of hefty losses with South Africa’s rand strengthening nearly 1 percent.

MSCI’s emerging market equity benchmark fell 0.4 percent to a three-week low in its seventh straight day in the red, edging to within a whisker of its lowest level since July 2017 and firmly back in bear territory. The index has lost now nearly 21 percent from its January peak.

Steep losses in Asia dragged the benchmark lower, with Hong Kong and China mainland stocks falling around 1 percent on concerns that U.S. President Donald Trump’s administration could slap tariffs on an additional $200 billion worth of Chinese products following the end of its consultation period later in the day.

“That, then, could lead to new China tariffs being announced shortly – and China in turn stands ready to retaliate,” Bas van Geffen at Rabobank wrote in a note to clients. “This would certainly be bad news for equities globally, as it would elevate the trade conflict to a whole new level. Fears of a U.S. tariffs announcement are adding to the EM selloff.”

Meanwhile emerging market currencies were taking a breather following hefty losses in recent days. Emerging market currencies have been battered after a full blown currency crisis engulfed Turkey and the crisis in Argentina sent tremors through developing economies.

RAND STEADIES

South Africa’s rand strengthened 0.9 percent against the dollar after President Cyril Ramaphosa repeated promises for a stimulus package to reignite growth following data earlier in the week showing the continent’s most industrialised economy unexpectedly dipped into recession in the second quarter – its first since 2009.

Adding to momentum was data showing that South Africa’s current account deficit narrowed to 3.3 percent of gross domestic product in the second quarter.

However, ratings agency Moody’s warned that the slump into recession exacerbated fiscal and monetary challenges for South Africa, and was a “credit negative”. The rand has tumbled 20 percent since the start of the year.

Turkey’s lira, which has dropped more than 40 percent since the start of the year, strengthened 0.5 percent. Ankara also said it had appointed two deputies to the Ministry of Treasury and Finance led by President Tayyip Erdogan’s son-in-law Berat Albayrak.

Mexico’s peso matched those gains, though Russia’s rouble was treading water as the economy ministry cut its economic growth forecast and with the threat of possible new sanctions from the U.S. looming large.

However, it seemed there was little let-up of pressure on the horizon for both local and external debt markets.

The premium of emerging market debt over safe-haven U.S. treasuries as measured by the JP Morgan EMBI Global index closed at its highest in more than two years on Wednesday. Meanwhile the VanEck ETF, which replicates JP Morgan’s local currency emerging bond index GBI EM, touched a fresh record low in its sixth straight day in the red.

“Seeing EM sovereign-U.S. credit spread differentials at their widest suggests that market tension is on the rise,” Morgan Stanley’s Hans Redeker wrote in a note to clients.

“For EM spreads to tighten, liquidity conditions need to improve, but we currently see no indication of this.”

In central Europe, the Serb dinar firmed a touch ahead of a central bank meeting where policy makers are expected to keep the region’s highest benchmark rate unchanged at 3 percent rather than cutting it further.

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 Climb as Markets Eye Potential US Rate Cuts in September

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Crude oil - Investors King

Oil prices rose during the Asian trading session today on speculation that the U.S. Federal Reserve may begin cutting interest rates as soon as September.

Brent crude oil, against which Nigerian oil is priced, increased by 32 cents to $82.95 a barrel, while U.S. West Texas Intermediate crude oil climbed 34 cents to $80.47.

The anticipation of rate cuts stems from recent U.S. inflation and labor market data indicating a trend towards disinflation and balanced employment, according to ANZ Research.

The Federal Reserve is set to review its policy on July 30-31, with expectations of holding rates steady but providing clues for potential cuts in September.

The potential rate cuts could stimulate economic activity, increasing demand for oil. This optimism has been partially offset by recent concerns over China’s slower-than-expected economic growth, which could dampen global oil demand.

President Joe Biden’s announcement to not seek re-election and endorse Vice President Kamala Harris had minimal impact on oil markets.

Analysts suggest that U.S. presidential influence on oil production is limited, although a potential Trump presidency could boost oil demand due to his stance against electric vehicles.

In response to economic challenges, China surprised markets by lowering key policy and lending rates. While these measures aim to bolster the economy, analysts remain cautious about their immediate impact on oil demand.

With OPEC+ production cuts continuing to support prices, the focus remains on the U.S. Federal Reserve’s next moves.

Any decision to cut rates could further influence oil prices in the coming months, highlighting the interconnectedness of global economic policies and energy markets.

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Crude Oil

Dangote Refinery Clash Threatens Nigeria’s Oil Sector Stability

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Crude oil

Nigeria’s oil and gas sector is facing a new challenge as a dispute between Dangote Industries Limited and the Nigerian Midstream and Downstream Petroleum Regulatory Agency (NMDPRA) intensifies.

The disagreement centers on claims by NMDPRA that diesel from the Dangote Refinery contains high sulfur levels, making it inferior to imported products.

The $20 billion Dangote Refinery, located near Lagos, has the potential to process half of Nigeria’s daily oil output, promising to reduce dependency on foreign fuel imports and create thousands of jobs.

However, the recent accusations have cast a shadow over what should be a significant achievement for Africa’s largest economy.

Industry experts warn that the ongoing conflict could deter future investments in Nigeria’s oil sector.

“Regulatory uncertainty is a major disincentive for investors,” said Luqman Agboola, head of energy at Sofidia Capital. “Any factor affecting foreign investment impacts the entire value chain, risking potential energy deals.”

The regulatory body, led by Farouk Ahmed, maintains that Nigeria cannot rely solely on the Dangote facility to meet its petroleum needs, emphasizing the need for diverse sources.

This position has stirred controversy, with critics accusing the agency of attempting to undermine a vital national asset.

Amidst these tensions, energy analyst Charles Ogbeide described the agency’s comments as reckless, noting that the refinery is still in its commissioning stages and is working to optimize its sulfur output.

In response, Dangote Industries has called for fair assessments of its products, asserting that their diesel meets African standards.

The refinery’s leadership argues that certain factions may have ulterior motives, aiming to stifle progress through misinformation.

As the dispute continues, the broader implications for Nigeria’s oil sector remain uncertain. The outcome will likely influence not only domestic production but also the country’s standing in the global energy market.

Observers hope for a resolution that supports both industrial growth and regulatory integrity, ensuring stability in a sector crucial to Nigeria’s economy.

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Crude Oil

Nigeria Pumps 236.2 Million Barrels in First Half of 2024

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markets energies crude oil

Nigeria pumped 236.2 million barrels of crude oil in the first half of 2024, according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).

This figure represents an increase from the 219.5 million barrels produced during the same period in 2023.

In January, Nigeria produced 44.2 million barrels of crude oil while February saw a slight dip to 38.3 million barrels, with March following closely at 38.1 million barrels.

April and May production stood at 38.4 million barrels and 38.8 million barrels, respectively. June’s output remained consistent at 38.3 million barrels, demonstrating a stable production trend.

Despite the overall increase compared to 2023, the 2024 production figures still fall short of the 302.42 million barrels produced in the same period in 2020.

This ongoing fluctuation underscores the challenges facing Nigeria’s oil sector, which has experienced varying production levels over recent years.

On a daily basis, Nigeria’s crude oil production showed some variability. In January, the average daily production peaked at 1.43 million barrels per day (mbpd), the highest within the six-month period.

February’s production dropped to 1.32 mbpd, with a further decrease to 1.23 mbpd in March. April saw a modest increase to 1.28 mbpd, which then fell again to 1.25 mbpd in May. June ended on a positive note with a slight rise to 1.28 mbpd.

The fluctuations in daily production rates have prompted government and industry leaders to address underlying issues.

Mele Kyari, Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPC), has highlighted the detrimental effects of oil theft and vandalism on Nigeria’s production capabilities.

Kyari emphasized that addressing these security challenges is critical to boosting production and attracting investment.

Kyari also noted recent efforts to combat illegal activities, including the removal of over 5,800 illegal connections from pipelines and dismantling more than 6,000 illegal refineries.

He expressed confidence that these measures, combined with ongoing policy reforms, would support Nigeria’s goal of increasing daily production to two million barrels.

The Nigerian government remains focused on stabilizing and enhancing oil production. With recent efforts showing promising results, there is cautious optimism that Nigeria will achieve its production targets.

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