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Markets Today – Earnings, Fed, BoC, Oil, Gold, Bitcoin

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

We’re seeing a strong start to trading on Wednesday after what has been a very turbulent start to the week.

We’ve seen some sharp sell-offs already this week but investors appear to be encouraged by just how quickly and strong markets have bounced back. Monday looked like it was going to be a bloodbath in equity markets but rather than panic, investors poured back in and seized upon the lower valuations.

We saw this again after the close on Tuesday, when Microsoft earnings caused another wobble but reassurances around decelerating cloud growth were enough to trigger another wave of bargain hunting and we’re seeing that carry through to Europe today. US futures also look very healthy ahead of a crucial Fed decision later.

Fed misstep could have severe consequences

The Fed could have a big role to play in whether stock markets will build on these encouraging signs. As ever, every word will be poured over so I expect the central bank will take a very careful approach in its communication later on.

They need to be careful to find the right balance between taking inflation seriously and not overdoing it. These markets will be easily spooked so today is all about finding just the right balance. That means sending a clear signal about a March hike and alluding to discussions around balance sheet reduction towards the middle of the year.

We probably won’t get any specifics from Powell on when that will start or how fast it will happen, nor on how many hikes we’ll get this year. He will probably be keen to stress how seriously they’re taking it though and how they’ll do whatever is necessary. Ultimately, we may learn very little but the important thing is we don’t see a misstep as the consequences could be severe.

BoC expected to start aggressive tightening cycle

The Bank of Canada is unlikely to wait until March, with markets quite heavily pricing in a rate hike today and as much as six this year. This comes as inflation has risen to the highest level in 30 years and far above its 1-3% target range. With the labour market also tightening following a strong recovery from the pandemic, the time has arrived for accommodation to be removed.

The only question now is just how fast they’ll move and whether they’ll look to reduce their balance sheet, rather than just aggressively raise rates. The loonie has performed well recently, buoyed by very hawkish rate expectations and we could get more clarity on how accurate they are today.

Oil eyeing triple figures after brief pullback

Oil prices are continuing to edge higher after a brief pullback last week. The move followed some turbulence at the start of the week and came as API reported an 872,000 barrel draw which exceeded expectations. Crude prices are once again closing in on $90 and at this point, it doesn’t look like we’ll be waiting long.

So immediately it becomes a question how long we’ll be waiting for triple figures. The supply/demand dynamics remain favourable and the potential for conflict in Ukraine can only be supportive, as additional risk premiums are priced in. It’s still unlikely that oil and gas will be used as a weapon any time soon but if it was, it could lead to a serious surge in prices given how tight the markets are.

Gold awaits Fed decision

Gold is continuing to hold up ahead of the Fed meeting, close to $1,850 where it has seen some resistance recently. The central bank will have a big role to play on whether the yellow metal breaks above here or below $1,830 support.

It has been rising recently even as the market has priced in four hikes and balance sheet reduction which may suggest we’re seeing some inflation hedging in case more tightening is needed. Risk aversion may also be supporting the gold price. Either way, we should have more clarity later today.

Cause for optimism?

The recovery in bitcoin over the last couple of days has been really encouraging. After falling to around $33,000, more than 50% from its highs, the cryptocurrency has performed extremely well and finds itself 4% higher on the day around $38,000. It’s not out of the woods yet though and if broader risk appetite takes a hit, I’d expect bitcoin to suffer more. Whether that will see it test the crucial $30,000 region, only time will tell, but traders will be very relieved at what they’ve seen this week. The key test above is $40,000, a break of which could see momentum accelerate to the upside.

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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 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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