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Let the Festivities Begin

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First Day Of Trading Of The Lunar New Year at The Hong Kong Stock Exchange (HKEx)

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

Stock markets are ending the week on a downbeat note after central banks around the world largely adopted a more hawkish stance in recent days.

Only time will tell whether investors support the moves from central banks this week as much as they initially appeared to. More than a decade of ultra-low interest rates has been kind to investors and the path that many central banks have embarked on makes life a little harder for them, but not nearly as hard as high inflation.

It can be tough to take the pulse of the markets in times of such volatility and uncertainty, as we’re currently seeing. But I’m inclined to look at the way they’ve traded in the run-up to, and immediate aftermath of, the central bank announcements and deduce that investors are comfortable with the decisions that have been taken and view them as being in the long term interest of the bull market. What’s happened since may have more to do with the period we’re now heading into as investors prepare for the festivities.

A modest tightening is far more preferable than the risk of soaring inflation and a more aggressive monetary response further down the line. Central banks can’t afford to take those risks, not at a time when their economies are performing well, labour markets are tight and inflation is becoming more ingrained and widespread. The time has clearly come to address the inflation elephant in the room.

Take the case of the BoE. Many were surprised that the MPC raised rates on Thursday but if they hadn’t as a result of omicron uncertainty, they almost certainly would have in February and then multiple times next year. So while it could be argued that waiting for more data would have been prudent, it ultimately makes very little difference.

Especially with a move as insignificant as 15 basis points, one of the smallest hikes ever and the smallest since the late 80s. The message was important though; the tightening cycle has started and policymakers will turn a blind eye to inflation no more. A sentiment shared by many central banks around the world as we head into 2022.

Boost in UK retail sales unlikely to last

UK retail sales capped off an interesting week of data for the country that also saw restrictions tightened, virus numbers hit records and interest rates rose. The November rise was larger than expected while October was revised higher in a sign of consumers bringing forward their Christmas purchases in anticipation of stock shortages, perhaps even fear of more restrictions. The surge is not expected to last and recent developments could hinder retail sales further in the new year.

Oil consolidates as we await more data on omicron

Oil prices are down around 2% on Friday, dragged lower as trading becomes more risk-averse at the end of the week. It had rebounded well over the last couple of days but has run into resistance at the upper end of its recent range, around $73. We could see further consolidation around $70 in the coming sessions as we learn more about omicron, what restrictions it will bring, and whether OPEC+ will react.

The group has put a floor under the price for now, after announcing that adjustments could come at any time depending on the incoming data, but that will only hold so long if restrictions weigh on demand.

Relief for gold despite central banks embarking on tightening cycles

Gold is taking the news that central banks are tightening monetary policy and tackling inflation head-on very well. You would be forgiven for thinking this would be a negative development for the yellow metal and, in the longer term, I expect it will be.

But it’s also a development that was almost entirely expected and priced in. So we may be seeing some profit-taking on the pre-meeting moves which is pulling yields a little lower and weighing on the dollar. This should be a short-term relief move, although that may depend on what the omicron data tells us in the coming weeks. It’s spreading like wildfire here in the UK and other countries appear to having a very similar experience.

A strange end to the year for bitcoin

I keep falling into the trap of trying to link moves in bitcoin to events that are triggering responses across financial markets and it’s becoming quite clear how pointless that was. The cryptocurrency has been consolidating for weeks since its flash crash and everything that’s happened in that time that has been the catalyst for volatility across various asset classes has done little to pique the interest of this particular corner of the market. It feels strange to be talking about massive volatility in the markets and not including bitcoin. But then it’s been another strange year and I’m sure 2022 will be no different.

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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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