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January Blues

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Market summary

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

It’s been something of a downbeat day in the markets, something we may see more of this morning as the January blues kick in.

The omicron relief trade appears to have played out now and attention has quickly shifted back to the interest rates dilemma, with the economy performing well but not firing on all cylinders, the labor market extremely tight and inflation at risk of getting out of control.

Central bank policymakers would ordinarily like to be more patient during this stage of the recovery cycle but the pandemic was no ordinary economic shock and this is certainly no ordinary recovery.

Based on how investors responded to the Fed minutes on Wednesday, you’d be forgiven for thinking they’re terrified at the prospect of tighter monetary policy and couldn’t have foreseen what the central bank was about to unleash upon us. But the reality is very different and the reaction is over the top. Something I tend to expect this time of year.

Aside from the references to balance sheet reduction, which at this point are merely an option up for discussion, there was nothing in the minutes that wasn’t clear after the meeting. Slightly higher yields are a normal response to the balance sheet discussion but the level of risk aversion seen across the markets is not.

Data from the US today appears to continue to point to the same thing for the US, as far as inflation is concerned. Labour markets are extremely tight which should lead to higher wages, higher inflation expectations, and more permanent pandemic price pressures. And an apparent easing of supply-side pressures that could see temporary inflation pressures abate. Cause for concern and optimism if you’re a central banker.

Oil shakes off sentiment hit

Oil is continuing to push higher as traders price in a modest economic impact from omicron. The OPEC+ meeting this week supported the view and the price of oil is now not far from its October peak, with WTI closing in on $80 for the first time in almost two months.

The knock to broader market sentiment from the Fed minutes is not reverberating around the crude market, with prices up more than 2% on the day and backed by momentum.

Gold hit hard by Fed minutes

Gold’s recovery in late December appeared to be built on rocky foundations and the Fed minutes delivered a hammer blow to hopes of sustaining a move above $1,800 in the near term. The yellow metal has slipped further today, off more than 1%, and we could see the pullback gather momentum.

Once again, resistance around $1,833 has got the better of gold. It appeared to have finally broken the barrier in November but it wasn’t long before it came crashing down once more and the last week has shown it remains as much a barrier now as it did before.

A nasty shock for bitcoin

Bitcoin has snoozed its way into 2022 and the Fed minutes on Wednesday gave it just the shock it needed to bring it back to life. Unfortunately for the hodler community, it wasn’t in their favour and the cryptocurrency crashed below $45,500 support, losing more than 5% on the day. It’s stabilised a little today but remains almost 2% lower and below $43,000. The next major support is $40,000, a break of which would be another big blow.

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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