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Stocks Push Higher Again

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China's Stocks Tumble as Markets Reopen After Week-long Holiday

By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

We’re seeing improvements in risk appetite again on Tuesday as fears around Omicron continue to ease following earlier reports of less severe symptoms.

This is still an extremely fragile market but the early signs are offering some hope. The initial announcement a couple of weeks ago had investors fearing the worst and so far, that’s not what we’re seeing. Time will tell whether investors are getting ahead of themselves but a couple of days without a negative Omicron headline has the dip buyers flooding back in.

Given the concern among global leaders and various organisations over the last couple of weeks, I struggle to see all of the updates being as positive which makes more two-way price action a strong possibility.

And if it is, then we just have high inflation and monetary tightening to contend with at a time when the global economy is hardly thriving. Of course, that’s a better outcome than higher inflation, rising rates, and Omicron lockdowns but it’s far from perfect which may spoil the party a little. A Santa rally may be underway but it will be a bumpy ride.

Surprising calm around China

There’s a surprising element of calm around Chinese growth as well; a firm belief that authorities have this under control and will stop the Evergrande crisis from spilling over into something much more devastating. We’ll see how the restructuring goes but with the company now failing to source the funds to make coupon payments, it’s about to get real which is probably at least partly why we’re seeing support is arriving in the form of a RRR cut. Further measures will be necessary but so far it’s been enough to ease the nerves.

Oil continues higher on Omicron optimism

Oil prices are continuing to ride the risk wave higher, having been battered by Omicron headlines at times over the last couple of weeks. Crude hit a low after the OPEC+ decision but quickly recovered on the immediate adjustment caveat and since then it has been trading higher.

That could be a sign that OPEC+ has effectively put a floor under the crude price in order to protect its near-term interests but it’s probably more to do with the timing of the Omicron headlines. Don’t get me wrong, oil prices certainly saw some relief following the meeting but traders love to test the limits in these situations and may well still. But the Omicron updates just aren’t allowing for it currently.

There could still be further to run before we potentially see some profit-taking. We’re already seeing a bit in WTI around $71.50 but could see more on approach to $75, while in Brent $76.50-77.50 is key. Ultimately it comes down to the headlines though and if symptoms prove to be less severe, meaning fewer hospitalisations and fatalities than feared, there’s no reason oil prices can head back towards the levels seen for much of November.

Gold choppy ahead of the Fed

It’s been a bit of a choppy session for gold, which continues to trade in relatively tight ranges despite volatility elsewhere in the markets without making headway in either direction. It’s currently a little higher on the day having recovered small losses suffered in the aftermath of the US data. Higher than expected unit labor costs triggered a jump in the dollar which weighed on the yellow metal, not that it lasted for long.

It seems gold is trading with an eye on the Fed next week and an ear to the ground for Omicron news. The next week will be key, after which I expect it to take off in one direction or the other. The Fed’s response will be critical depending on the new variant as it may be faced with inflation and restrictions. Early signs are promising but that’s all it is.

Can bitcoin find some bullish momentum again?

Bitcoin provided a brief reminder that huge price swings go both ways when it plunged on the weekend but it’s recovered much of those losses in the days that have followed. It’s even climbed back above $50,000 but some big tests remain if it’s going to recapture some bullish momentum in these uncertain times. The next one is $53,500 which was a big area of support last month.

Crude Oil

Oil Prices Rise in Asian Trade as Supply Concerns Heighten Amid Russian Attacks

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Oil

Oil prices surged on Monday during the Asian trading session as concerns over global supply intensified amidst ongoing attacks on Russian energy infrastructure.

Brent crude oil, against which Nigerian oil is priced, climbed by 47 cents to $85.81 a barrel while the U.S. West Texas Intermediate (WTI) crude rose by 49 cents to $81.53 a barrel.

The market’s bullish sentiment was largely influenced by recent attacks on Russian refineries, which added $2-$3 per barrel of risk premium to crude last week.

These attacks persisted over the weekend, further heightening concerns about supply disruptions.

One of the strikes ignited a brief fire at the Slavyansk refinery in Kasnodar on Saturday. This refinery processes approximately 8.5 million metric tons of crude oil annually, equating to 170,000 barrels per day.

Consequently, a Reuters analysis revealed that these attacks have idled around 7% of Russian refining capacity in the first quarter of the year.

The impacted refining complexes play a crucial role in processing and exporting crude varieties to various markets, including China and India.

The escalating tensions in the Middle East also contributed to market unease. Israeli Prime Minister Benjamin Netanyahu confirmed plans to push into Gaza’s Rafah enclave, disregarding pressure from Israel’s allies.

This move raised concerns about regional stability, amplifying geopolitical risks in the oil market.

Investors are closely monitoring the outcome of the U.S. Federal Reserve’s two-day meeting scheduled to conclude on Wednesday.

The Fed’s decision regarding interest rates could provide further clarity on market direction, potentially impacting oil prices in the near term.

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Commodities

Commodity Trading Industry Hits $100 Billion Profit, Second-Best Year on Record

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Zambian economy

The global commodities market has reported $100 billion in profits despite facing challenges and disruptions, making its second-best year ever. 

According to analysis from consultancy firm Oliver Wyman LLC, while earnings have dipped slightly from the record-breaking levels of 2022, this year’s profits easily surpass previous highlights, including those seen during the global financial crisis of 2008-2009.

Consultant Adam Perkins attributes this success to favorable margins driven by ongoing supply-demand dynamics, despite the volatility seen in various sectors.

While specific financial results for many players within the industry are yet to be made public, the report indicates that major independent trading houses are expected to show an average drop of over 30% from the record levels of 2022.

However, disruptions in supply chains and shortages of diesel and fuel oil have somewhat offset the decline in volatility related to Russian crude oil.

These profits have enabled commodity trading firms to bolster their positions as key providers of energy, metals, and food resources on a global scale.

With significant investments in oil refineries, storage facilities, power plants, and acquisitions of other trading companies, these firms are solidifying their roles in shaping global supply chains.

Moreover, the windfall profits have led to executives and partners within these firms becoming multi-millionaires, facilitating a generational shift in leadership as seasoned traders retire.

Despite the pressure to uphold legacies and navigate increased scrutiny, the influx of new leadership presents opportunities for innovation and growth within the commodity trading sector.

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Crude Oil

Oil Prices Surge as IEA Boosts Demand Forecasts and Trims Non-OPEC Supply Projections

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Crude Oil

Oil prices skyrocketed following the International Energy Agency’s (IEA) adjustments to its demand and supply forecasts.

The IEA’s latest report, released Thursday, sent shockwaves through financial markets as it unveiled a robust upward revision in global demand estimates while simultaneously trimming projections for non-OPEC oil supply.

With unparalleled confidence, the IEA bolstered first-quarter global demand growth forecasts, citing improved outlooks in the United States and heightened bunkering demand due to extended voyages circumventing geopolitical hotspots.

This unexpected surge in demand projections has injected a newfound sense of optimism into an industry grappling with uncertainties amid a shifting geopolitical landscape.

Moreover, the IEA’s decision to slash its projections for non-OPEC supply further fueled market exuberance.

Factoring in recent cuts from the OPEC+ coalition and reduced output from non-OPEC nations, the agency’s revised supply forecast sent a clear signal to investors: the tide is turning in favor of tightening supply dynamics.

This monumental shift in market sentiment was reflected in Brent crude futures, which surged by 0.86% to $84.75 a barrel, marking a significant milestone in the oil market’s recovery.

U.S. West Texas Intermediate (WTI) crude followed suit, climbing 1.04% to $80.55 a barrel, as traders reacted swiftly to the IEA’s bullish outlook.

As the energy landscape undergoes a paradigm shift, industry experts anticipate a sustained rally in oil prices, driven by robust demand growth and tightening supply dynamics.

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