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Sitting On A Beach Earning 20%

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By Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA

With Christmas upon us, I was pondering how the world has changed and what better place to start than the first Die Hard movie, a Christmas favourite now, and Alan Rickman’s attempted thief of US bearer bonds. As the lead bad guy in the film, Mr Rickman gleefully extols that by the time the authorities know he and his gang have stolen the bearer bonds, “we’ll be on a beach, earning 20%.”

That was 1988; in 2021 it just wouldn’t ring as true. “By the time they find out, we’ll be on a beach, earning errrrr 1.50%. Or if had stolen bunds, it would be “by the time they find out, we’ll be on a beach earning err…-0.50%. Hang on, it’s not worth getting shot by John McCain for -0.50%, grab some of the Greek 10-years as well. What? 0.70%!? Crime doesn’t pay anymore. Ok chaps, Plan B. Call that crypto broker back in Belize, lets circle back to those password locked JPG’s they call NFT’s, find me that investment banker’s number who was flogging SPACs, buy me some technology stocks and let’s reactivate that Reddit account, there’s plenty of suckers in there we can rob without getting shot.”

Mr Rickman’s quandary nicely encapsulates 2020 and 2021 when one thinks about it. Die Hard in its original form could never be made in 2021. Nevertheless, the bottomless amounts of zero per cent money from the world’s central banks continue to pump up asset prices everywhere, economic equality-be-damned. That situation is about to change though, with the Federal Reserve beginning the monetary normalisation path in 2022.

Markets continue to dismiss omicron because that’s what they want to believe, and the US data dump overnight had strong showings from the PCE Index, Durable Goods and Michigan Consumer Sentiment. Assuming omicron is a storm in a test tube, and I certainly hope it is, there was nothing to deter the Fed overnight. The omicron-is-mild rally could well continue into January now, but reality will bite in February I believe, as the end of the Fed taper moves into sight.

Don’t discount omicron though, much of the developing world, including the author, were vaccinated with Sinovac which doesn’t appear to work against the new variant. We can also take off our western-centric blinkers and note that China is in the same situation, it will remain shut for all of 2022 now. And while rich countries continue with their vaccine and pill lolly scramble, the majority of the world will still provide fertile ground for more variants to emerge.

Still, assuming we move through omicron and Vladimir Putin decides to spend his winter holidays in Russia and not “overseas,” policy normalisation by the Fed will the theme of 2022. Perversely, China may assist this process as their Covid-zero policy keeps the border shut and the Renminbi strong as their giant trade surplus gets recycled into local currency. China will become an exporter of inflation instead of deflation going forward, another uncomfortable reality for consumers globally, but another reason for the Fed, and perhaps others, to hitch their wagons to fighting inflation and teaching the world once again, that the natural cost of capital is not zero per cent.

2022 may yet make crime pay for Alan Rickman as his bearer bond yields improve. In the meantime, yippee ki-yay everybody, stay safe, eat a lot, and happy holidays from me in Jakarta. I shall return next week, fear not. But, for now, my attention turns to making pavlova (invented by Kiwis, not Aussies,) and the bringing of my 5kg organic, free-range turkey from Bali.

Asian equities mixed in pre-Santa session.

Thankfully, reporters have stopped asking me if we will get a Santa Claus rally in stock markets, as it has well and truly arrived. Wall Street rose again overnight after a strong procession on US data and markets convincing themselves even more, that omicron is a mildly symptomatic storm in a teacup. The S&P 500 rose by 0.62%, while the Nasdaq jumped by 0.82%, with the Dow Jones moving 0.52% higher. Santa and his reindeer may be serving a compulsory quarantine on arrival, but he has still managed to drop off some record highs for the holiday season.

US index futures are closed and Asia itself is having another mixed performance today in line with similar cautious sentiment displayed over the week. The Nikkei 225 has crept 0.10% higher, with the Kospi rising by 0.60% and Taipei climbing by 0.35%. Hong Kong has risen by 0.20% but Mainland exchanges have edged lower. The Shanghai Composite and CSI 300 are 0.35% lower.

Singapore and Jakarta have risen by 0.30% while Kuala Lumpur has edged 0.10% lower. Bangkok has eased by 0.15%, and Manila has retreated by 0.70%. Australian markets are determined to end what is effectively their last trading day for the year on a bright note. The ASX 200 and All Ordinaries have followed Wall Street 0.50% higher today.

Asian markets look very much to be in book-squared waiting-for-midday-to leave-mode. I expect the positive momentum to continue into Northern hemisphere markets this evening, and if omicron remains a side-lined issue, we could see this rally extend into the New Year.

US Dollar trades sideways.

Currency markets look like they have closed for the year now, with overnight trading featuring modest ranges unless you are trading Turkish Lira. The dollar index is almost unchanged overnight, trading at 96.06 today. A daily close under 95.85 sets up a deeper US Dollar correction, potentially into January, assuming omicron remains a storm in a teacup in the minds of the investors globally.

EUR/USD has hardly moved, trading at 1.1330, but still faces resistance above 1.1360. Only a move above 1.1400 suggests a medium-term low could be in place. Improved risk sentiment, especially around omicron, given the UK caseload, appears to be lifting Sterling. It has risen 0.45% to 1.3415. GBP/USD has recaptured 1.3400, signalling a medium-term low. Such is the Prime Minister’s unpopularity in the UK right now, if Boris gets the push over Christmas, Sterling will likely rally once again. USD/JPY is at 114.30 today after US yields edged higher overnight.

The three risk-sentiment amigos, the CAD, AUD, and NZD continued booking modest gains overnight. A rise above 0.7250 for AUD/USD and 0.6850 from NZD/USD will signal further rallies into the new year. USD/CAD is at 1.2850 this morning and needs to close below 1.2750 to signal the same. Price action this morning has seen all three edges lower, suggesting that investors are trimming long positions into the holidays.

Asian currencies continue range trading as the PBOC. Once again, set a weaker Yuan fixing. The Asian interbank market looks to have closed shop for the year now. A stronger Yuan continues to backstop Asian FX from negative sentiment shifts.

Another rally for oil.

The omicron is not-as-bad-as-we-thought trade continued to push oil markets higher overnight, with positive US data reinforcing the theme that the momentum of  US recovery continues and that the US consumer is alive and well and spending.

Brent crude rose 1.55% to $76.75 a barrel. WTI rallied by 1.0% to $73.70 a barrel. With some US futures closed in Asia, only Brent crude is trading this morning and some profit-taking is evident. Brent crude is easing 0.70% to $76.20 in thin trading. $74.75 and $74.45 are initial support, with resistance at 76.90 a barrel, the 100-day moving average (DMA), capping gains overnight. WTI rose through resistance at $73.00 which becomes support. Resistance is at $74.10 initially, it’s 100-DMA.

Gold side-lined overnight.

In line with tight ranges in currency markets and US bonds, gold was side-lined overnight, rising just 0.27% to $1808.50 an ounce. With gold futures closed in Asia, it remains around those levels.

Gold’s attempts to stage a meaningful recovery remain unconvincing, with traders cutting long positions at the very first sign of trouble intra-day. Gold lacks the momentum, one way or another, to sustain a directional move up or down. That said, gold could extend its gains into the end of the weak if growth sentiment remains ascendant.

Gold has formed a rough double top around the $1815.00 region which will present a formidable barrier, ahead of $1840.00.  Support lies at $1790.00, followed by $1780.00 an ounce. $1790.00 to $1815.00 continues to be my call for the range for the week.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Markets

Lacking Direction

Equity markets are lacking any real direction in Asia and that appears to be carrying into the European session as well.

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

Equity markets are lacking any real direction in Asia and that appears to be carrying into the European session as well.

Europe is seeing minor losses on the open, offsetting some of the small gains in choppy trade at the start of the week. This follows a similarly choppy session in the US on Monday as the Dow flirted with exiting correction territory and the Nasdaq bear market territory.

We may have reached a point in which investors need to decide whether they truly buy into the recovery/no recession narrative or not. That is what appears to have fueled the recovery we’ve seen in equity markets despite the fact that inflation hasn’t even started falling, central banks are still hiking aggressively and recession is on the horizon for many.

It’s time to decide whether this is just a substantial bear market rally or a genuine view that the economic outlook is far less downbeat than many fear. If equity markets are going to push on from here, it must be based on the latter which I’m sure many would welcome but perhaps more through hope than expectation.

Don’t get me wrong, the US in particular still has plenty of reason to be encouraged. The data on Friday highlighted once more just how hot the labour market still is and the consumer is still in a very healthy position. But there are pockets of weakness as well and unless inflation starts to subside, those areas of strength will start to crack.

The inflation data on Wednesday could effectively set the mood for the rest of the summer. That seems quite dramatic but if we fail to see a drop in the headline rate, considering the acceleration we’re expected to see in the core, it could really take the wind out of the sails of stock markets as it would be very difficult for the Fed to then hike by anything less than 75 basis points in September.

Of course, there will be one further labour market and inflation report before the next meeting which will also have a big role to play. But the July data will be very difficult to ignore. If the rally is going to continue, we may need to see a deceleration in the headline rate at a minimum, perhaps even a surprise decline at the core level as well. It’s no wonder we’re seeing so much caution this week.

Oil edges lower as Vienna talks conclude

Oil prices are marginally lower on Tuesday after recovering slightly at the start of the week. All of the talk of recession has caught up with crude prices over the summer, forcing a substantial correction that will be welcomed by those looking on in horror as they fill their cars.

The question is how sustainable $90 oil is when the market remains very tight and OPEC+ is only willing to make small moves in order to address it. It’s comforting to know that Saudi Arabia and the UAE have spare capacity in case of emergency but I’m sure most would rather they actually use some of it considering many countries are facing a cost-of-living recession. ​

Nuclear deal talks in Vienna have concluded, with the EU suggesting a final text will now be put forward for the US and Iran to either agree on or reject. I’m not sure traders are particularly hopeful considering how long it’s taken to get to this point and with there still reportedly being points of contention. An agreement could ease further pressure on oil prices, the extent of which will depend on how quickly the country could then flood the market with additional crude.

Gold eyeing CPI data for breakout catalyst

Gold continues to trade around its recent highs ahead of Wednesday’s inflation report, with a softer dollar on the back of lower yields on Monday supporting the rally once more. The yellow metal continues to see significant resistance around $1,780-1,800 and we may continue to see that in the run-up to the CPI release. A softer inflation number tomorrow, particularly on the core side, could be the catalyst for a breakout to the upside while a stronger number could put $1,800 out of reach for the foreseeable future.

Bitcoin rallies losing momentum

Bitcoin is not generating the same momentum in its rallies in recent weeks, as it continues to run into strong resistance on approach to $25,000. In much the same way that US stock markets are lingering around potentially important levels ahead of the inflation data, we could see bitcoin behaving in a similar manner. A weaker inflation reading could be the catalyst it needs to break $25,000 and set its sights on the $28,000-32,000 region once more, where it hasn’t traded since the early part of the summer.

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Energy

Nigeria Loses N184 Billion to Gas Flaring in H1 2022

Nigeria lost N184 billion to gas flaring in the first half (H1) of 2022, the Nigerian Oil Spill Monitor.

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Oil and Gas

Nigeria, Africa’s largest economy, lost N184 billion to gas flaring in the first half (H1) of 2022, the Nigerian Oil Spill Monitor, a unit under the Nigerian Oil Spill Detection and Response Agency (NOSDRA), reported on Sunday.

Despite Nigeria’s huge gas deposits, Africa’s largest economy continues to struggle with the necessary infrastructure needed to convert gas flaring to useful natural liquified gas. In the last 18 months, Nigeria has lost almost a trillion Naira in gas value.

The report showed that Nigeria lost a total sum of N707 billion in 2021 alone while another N184 billion was lost in the first half of 2022.

NOSDRA report noted that gas companies operating in the country flared 126 billion standard cubic feet (SCF) of gas in the first six months of 2022, resulting in $441.2 million or N188.887 billion (using the I&E exchange rate) lost.

Further analysis of the report showed that oil firms operating in the offshore oilfields flared 62.2 billion SCF of gas valued at $217.6 million in the first half of 2022. However, companies operating onshore flared a total of 63.9 billion SCF, estimated at $223.6 million.

Speaking on the situation, Prof. Olalekan Olafuyi, the Chairman of the Society of Petroleum Engineers (SPE), Nigeria Council, in an interview on Sunday, said the Federal Government is working on raising gas flaring penalties to further compel oil companies operating in the country to comply with the existing gas policy.

He said “We are working closely with the Nigerian Upstream Petroleum Regulatory Commission, and I can categorically say that companies who flare gas will now pay more than those utilising it. So, it will be to their advantage to start thinking of ways to utilise their gas instead of flaring them.”

Presently, the federal government imposed a penalty of $2 on 1000 SCF of gas flared by oil companies producing above 10,000 barrels per day (bpd). While companies producing less than 10,000 bpd are fined $0.5 per 1000 scf of gas flared.

Even though Olafuyi did not state how much increase the new rate would attract, he said the Federal Government is working with the Nigerian Upstream Petroleum Regulatory Commission (BUPRC) to devise a suitable penalty increase.

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Crude Oil

Oil Drops to $93.32 a Barrel on Monday

Oil prices declined on Monday amid concerns over the recession and the drop in crude oil imports in China, the world’s largest importer of the commodity.

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Oil - Investors King

Oil prices declined on Monday amid concerns over the recession and the drop in crude oil imports in China, the world’s largest importer of the commodity.

Brent crude oil, the international benchmark for Nigerian oil, dropped to $93.32 per barrel at 12:47 pm Nigerian time, down from $96.06 a barrel it attained during the Asian trading session.

U.S. West Texas Intermediate oil also depreciated from $89.47 a barrel to $87.45.

China, the world’s top crude importer, imported 8.79 million barrels per day (bpd) of crude in July, up from a four-year low in June, but still 9.5% lower than a year ago, customs data showed.

Chinese refiners drew down stockpiles amid high crude prices and weak domestic margins even as the country’s overall exports gained momentum.

Reflecting lower U.S. gasoline demand, and as China’s zero-Covid strategy pushes recovery further out, ANZ revised down its oil demand forecasts for 2022 and 2023 by 300,000 bpd and 500,000 bpd, respectively.

Oil demand for 2022 is now estimated to rise by 1.8 million bpd year-on-year and settle at 99.7 million bpd, just short of pre-pandemic highs, the bank said.

Russian crude and oil products exports continued to flow despite an impending embargo from the European Union that will take effect on Dec. 5.

In the United States, energy firms cut the number of oil rigs by the most last week since September, the first drop in 10 weeks.

The U.S. clean energy sector received a boost after the Senate on Sunday passed a sweeping $430 billion bill intended to fight climate change, among other issues.

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