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Jerome and the Three Bears

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

Federal Reserve Chairman Jerome Powell, testifying at his confirmation hearing on the Hill, soothed markets overnight in a performance worthy of Goldilocks and the Three Bears. Mr Powell noted that the Fed could hike rates to rein in inflation, intended to start the balance sheet run-off sooner rather than later, but also said inflationary pressures would peak mid-year. What he didn’t say was also important. He didn’t back four rate hikes in 2022, nor a March start to hikes, nor did he give any details on when the Fed balance sheet run-off would start.

It was a masterful performance really, leaving the bowls neither too full nor too shallow; but just right from the financial market’s perspective. Ignoring recent comments from hawkish FOMC members while reinforcing that the Fed has likely accomplished its employment objective and was well aware of the inflation one. Certainly, if Mr Powell believes inflation will peak in H2 2022, there seems no need for a panicked start to hikes in March, let alone four of them. If anything, that the Fed has shown over the past two years, it is an abundance of caution and patience.

That was enough to unleash the buy-the-dip gnomes, who had been straining at the leash these past few sessions. Equities rallied, oil rallied, US yields fell, the US Dollar fell, and even gold rallied. As goldilocks as it gets. Even if the Fed hikes to 1.0%-1.25% this year, real US yields will still be very negative. Hardly corporate finance Armageddon. The music can still play in equity markets in 2022, it’s just that we’ve likely seen the best of the technology gains, and markets will see a lot more two-way price action to keep them honest. Nor am I ruling out a 10-15% drop in US markets and other Caligula’s of Valuations, they would still be comfortably in a longer-term bullish uptrend.

Today has seen a few data releases from Asian heavyweights China, South Korea, and Japan. All of which sounded cautious notes for varying reasons. China’s YoY Inflation Dec came in at 1.50% vs 1.80% exp. South Korean Unemployment crept higher unexpectedly to 3.80%. In both circumstances, the blame can be laid on omicron restrictions crimping domestic economic activity. Cases are quietly climbing in Mainland China and Hong Kong, along with widening restrictions, and with Covid-zero policies in place, omicron presents a serious growth risk to China if it fully jumps the fence.

Conversely, Japan’s Reuter’s Tankan Index fell to 17.0 for January from 22.0 in December as Japanese businesses grappled with rising prices. That’s correct, your eyes are not deceiving you. Japanese businesses are grappling with rising prices and may have to raise prices. That will be a 30-year shock to the system but don’t expect any action from the Bank of Japan. The pandemic may have finally done the job that the Ministry of Finance and bank of Japan spent decades failing at.

India releases inflation later this evening and there are definite upside risks to the expected 5.80% print. Throw in rising omicron cases into a low vaccination population, and new social restrictions in cities such as New Delhi, and the ingredients are there for a stagflationary surprise. A high inflation print tonight will do the INR and Sensex no favours tomorrow.

We also get German Wholesales Prices and Eurozone Industrial Production this afternoon, but the main event will be the US Headline and Core Inflation YoY for December, expected at 7.0% and 5.40% respectively. Although Mr Powell managed to goldilocks the market overnight, keeping his three bears at bay, if US inflation tops 7.0% this evening, all his good work could be undone.

Asian equities jump on Wall Street rally.

The soothing words of Jerome Powell overnight unleashed anxiously waiting, but side-lined buyers, resulting in a strong overnight recovery by Wall Street. The S&P 500 rallied 0.92%, the Nasdaq leapt higher by 1.41%, and the Dow Jones rose 0.52%. In Asia, futures on all three have held steady.

Asian markets have coat tailed the New York rally and moved higher today. Notably, those that have struggled as the Nasdaq fell over the past few seasons. The Nikkei 225 has jumped 1.75% higher in response, with the South Korean Kospi rallying 1.15%, and Hong Kong also leaping 1.75% higher.

Mainland China’s Shanghai Composite has drifted 0.15% higher, with the more growth-centric CSI 300 climbing by 0.45%. Singapore and Taipei have drifted 0.15% higher, while Jakarta has gained 0.45%, and Kuala Lumpa and Manilla are unchanged. Australia’s ASX 200 and All Ordinaries have added 0.45% today.

The broader rally has favoured more value-centric markets with a heavier correlation to the Nasdaq today. As such, I am not expecting fireworks from Europe when it opens, having enjoyed a good season with the US overnight. The US inflation data will be the next hurdle for the equity rally continuance. Above 7.0% likely brings the inflation trade back, limiting gains, while a sub 6.50% headline should keep the party going as Fed hiking timetables get reset back to mid-year.

Risk sentiment recovery pushes US Dollar lower.

The Powell-inspired risk sentiment rally overnight saw US yields edge lower and weighed heavily on the US Dollar, which staged a broad retreat. The dollar index fell 0.36% to 95.60, just above support at 95.50. The US inflation data tonight will either confirm a period of US Dollar weakness or result in a nasty whipsaw price action. In the meantime, I wait patiently for a daily close above or below 95.50 or 96.50 to signal the US Dollar’s next directional move.

EUR/USD and GBP/USD gained around 0.40% to 1.1370 and 1.3640, where they remain unchanged in Asia. EUR/USD’ needs to close above 1.1400 to lessen the bearish outlook. However, GBP/USD has closed above 1.3600 and should now target 1.3800 in the days ahead, partying like some private drinks at 10 Downing Street. USD/JPY is steady at 115.25 but remains a bid on dips into 115.00 as long as US yields remain at these levels.

AUD/USD and NZD/USD are unmoved in Asia after edging higher to 0.7210 and 0.6790. Both continue to be bounced around on RORO (risk-on, risk-off) sentiment swings, but ultimately, are range-trading right now. The moves higher overnight weren’t overly convincing suggesting nerves ahead of US inflation data tonight. Key levels for AUD/USD are 0.7150 and 0.7300, and 0.6700 and 0.6850 for NZD/USD.

USD/CAD tumbled 0.85% to 1.2570 overnight and has activated a hand-and-shoulders formation after closing below the neckline at 1.2630. The reasons for the Canadian Dollar rally still elude me but I will respect the technical picture. That now suggest USD/CAD can fall to between 1.2300 and 1.2360 in the days ahead.

USD/Asia softened overnight, with regional currencies strengthening slightly as Jerome Powell took the wind out of the Fed tightening trade. USD/KRW has fallen to 1190.00, USD/PHP to 51.00, while USD/MYR has eased to 4.1790, and USD/THB to 33.369. USD/CNY and USD/CNH remain just below the key pivot level at 6.3800, trading at 6.3650 and 6.3700 respectively today. which is becoming a key pivot point now. Activity is muted in Asia with the region clearly waiting for US inflation data tonight before deciding its next moves.

Oil prices leap higher after Powell testimony.

Oil prices rocketed higher overnight as the Powell testimony removed the threat of early rate hikes, for now, allowing the fundamentals of constrained OEPC+ production, and an omi-gone variant recovery, to reassert themselves with a vengeance. Brent crude rocketed 3.25% higher to $83.60 a barrel, while WTI leapt 3.65% higher to $81.25 a barrel. Both contracts have firmed slightly in Asia to $83.80 and $81.45 a barrel respectively.

This sets the scene for more gains in the week ahead, having traded sideways the past few sessions as equity markets have corrected lower. It seems that even the threat of faster tightening by the Fed over the past few days couldn’t undermine oil prices, and if US inflation is lower than 6.50% tonight, after the Powell comments overnight, then oil prices should continue rising. Assuming China doesn’t suffer a sharp slowdown, that omicron actually becomes omi-gone, and with OPEC+’s ability to raise production clearly limited, I see no reason why Brent crude cannot move towards $100.00 in Q1, possibly sooner. Having said that, I acknowledge there are plenty of variable outcomes in the previous sentence, the biggest threat being omicron in China, India, and Indonesia.

In the nearer term, Brent crude has support at $83.00 and $81.00 a barrel, with resistance at $86.00 a barrel.  WTI has support at $80.50 and $78.50 a barrel, with resistance at $82.00 and 85.00 a barrel. One note of caution is that both Relative Strength Indexes (RSIs) are moving towards overbought. That could limit oil’s gains for the rest of the week and could signal a short-term correction but won’t change the underlying bullish outlook.

Gold rallies in Asia.

Gold saw the fast-money buyers return overnight as the Fed tightening trade was stopped in its tracks by Jerome Powell’s testimony. That pushed gold 1.10% higher to $1821.50 an ounce. As ever, I believe the rally should be taken with a huge grain of salt, as past price action suggests gold will fall just as quickly at the first sign of stalling momentum. A higher US inflation print could create that situation tonight.

Gold has edged lower to $1819.00 an ounce in Asia and has resistance just above at $1823.50, and $1830.00 an ounce. Support lies at $1800.00, followed by $1785.00 and $1780.00 an ounce.

Energy

How Nigeria’s National Power Grid Collapsed Ten Times Within 9 Months 

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power project

The national power grid has again collapsed, leaving many Nigerians in total darkness.

Investors King can authoritatively report that this is the tenth time the power grid will be disrupted this year alone.

For this recent collapse, the grid, reportedly lost power generation around 1:39 pm on Tuesday.

Information revealed that power generation was 2,711 megawatts as of 1:00 pm, having previously peaked at 3,631 MW.

Earlier, power generation peaked at 3,934.77 MW around six o’clock in the morning.

However, between 2 pm and 3 pm, hourly generation dropped to 0.00 MW.

The Transmission Company of Nigeria confirmed that the national grid experienced a partial disturbance at about 1:52 pm on Tuesday, 5th November 2024.

TCN spokesperson Ndidi Mbah mentioned that the recent collapse was due to a series of line and generator trippings that caused instability in the grid and, consequently, the partial disturbance of the system.

Mbah pointed out that data from the National Control Centre revealed that a part of the grid was not affected by the bulk power disruption.

TCN however indicated that work work is in progress to restore power.

She explained that engineers are already working to quickly restore bulk power supply to the states affected by the “partial disturbance.”

Mbah noted that presently, bulk power supply has been restored to Abuja at 2:49 pm, maintaining that “we are gradually restoring it to other parts of the country.”

She apologized to Nigerians for whatever inconvenience the collapse might have caused.

Findings by Investors King revealed that the grid had collapsed at ten different times between March and November, this year.

Times the grid collapsed included February 4, March 28, April 15, July 16, two times in August 5, October 14, October 15, twice in October 19 and now today, November 5.

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Energy

Darkness Falls Again: TCN Explains Latest National Grid Collapse

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The Transmission Company of Nigeria (TCN) has provided an explanation for the latest National Grid collapse, which occurred on Tuesday, November 5.

Tuesday’s collapse, marking the 10th in 2024 alone, left Nigerians in total darkness.

Recall that the National Grid collapsed twice in October, sparking concerns among Nigerians.

Reacting to the latest collapse via a statement on Tuesday, the General Manager of TCN Public Affairs, Ndidi Mbah, disclosed that the collapse happened at 1:52 pm.

The GM revealed that the grid collapse was caused by line and generator trippings.

Mrs. Mbah said, “TCN states that the national grid experienced a partial disturbance at about 1:52 pm today, 5th November 2024.

“This followed a series of line and generator trippings that caused instability in the grid and, consequently, the partial disturbance of the system.

Data from the National Control Centre (NCC) revealed that a part of the grid was not affected by the bulk power disruption.

Mbah disclosed that operators are working to restore power in affected states, adding that power was restored in Abuja.

She explained, “TCN engineers are already working to quickly restore bulk power supply to the states affected by the partial disturbance. Presently, bulk power supply has been restored to Abuja at 2:49 pm, and we are gradually restoring power to other parts of the country.”

Apologizing to Nigerians, TCN said, “We sincerely apologize for any inconvenience this may cause our electricity customers.”

Investors King, in an earlier report, revealed that in an attempt to address the persistent collapse of the national grid, the Nigerian Electricity Regulatory Commission (NERC) announced that discussions were underway with Independent Operators to take over the management of the grid.

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Energy

Nigeria Partners with ECOWAS and Morocco to Launch $26B African Gas Pipeline

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Gas-Pipeline

The Nigerian government, in partnership with the Economic Community of West African States (ECOWAS), Morocco, and Mauritania, has announced plans to advance the $26 billion African Atlantic Gas Pipeline project to drive economic growth across Africa.

This development was revealed on Monday, November 5, by Mele Kyari, Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPCL), at the ECOWAS Inter-Ministerial Meeting on the Nigeria-Morocco Gas Pipeline Project.

Speaking at the meeting, which was attended by ECOWAS Ministers of Hydrocarbons and Energy as well as representatives from Morocco and Mauritania, Kyari stated that, once completed, the project will connect 13 African countries.

Represented by Olalekan Ogunleye, NNPC’s Executive Vice President for Gas Power & New Energy, Kyari said this will be Africa’s largest pipeline project.

Ogunleye confirmed that progress has been made with the front-end engineering design completed, the phase two study finalized, and work ongoing for environmental and social impact assessments as well as land acquisition and resettlement.

He emphasized NNPC’s readiness to execute the project: “Today, we come together to make significant progress in the African Atlantic gas pipeline project, which is a transformative initiative connecting at least 13 African nations in shared prosperity and development. These achievements underscore our capability to deliver this landmark project, supported by strong regional collaboration.”

Ekperikpe Ekpo, Minister of State for Petroleum Resources (Gas), described the project as a game-changer for the regional economy, stating, “We stand at a critical juncture where these agreements can reshape our energy landscape, strengthen our economies, and uplift our people.”

He also highlighted that the project will increase Africa’s presence in the global gas market, noting that “the agreements demonstrate a strong commitment to advancing hydrocarbon and energy trade across ECOWAS, enhancing access to natural gas in West Africa, and expanding Africa’s global footprint in the gas market.”

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