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Fed Raises Recession Risks

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

Stock markets are back in the red on Thursday as further hawkish commentary from the Fed increases the odds of a recession over the next couple of years.

The soft landing that the Fed so desires is easier said than done, especially in an environment when inflation is so high and energy prices are through the roof. And when you consider the kind of tightening that’s being proposed, the economy is going to have to display incredible resilience to weather the storm.

The central bank has quickly gone from fighting the market to standing shoulder to shoulder with it. The next few meetings are likely to deliver three super-sized rate hikes it seems and that could be ramped up further if we don’t see some progress on inflation in that time.

Policymakers are clearly spooked by the data we’ve seen over the last couple of months and when faced with dealing with soaring inflation and supporting the economy, there’s only ever going to be one winner. They better hope any recession is mild and short-lived or the decision to drag their feet on starting the tightening cycle will look even more negligent.

Oil below $100 after IEA and EIA

Oil prices are slipping again today after falling more than 5% on Wednesday. The combination of the IEA reserve release and EIA inventory data sent prices tumbling yesterday and suddenly a world of double-figure oil looks possible.

That wouldn’t have been something to celebrate only a few months ago but a lot has changed since then. There are still plenty of upside risks to those prices despite the best efforts of those involved in the SPR release. But 240 million barrels is a substantial move that will help to offset the disruptions we’ve seen and allow time for US shale and OPEC+ to fill the void.

Gold sideways as other markets react to the Fed

The consolidation we’ve seen in gold in recent weeks has not been interrupted by the hawkish commentary we’ve had from the Fed over the last few days. While other areas of the market have reacted strongly to the comments, gold has been steady and if anything, the ranges have tightened.

Perhaps this is a sign of the enormous uncertainty in the outlook or the combination of high inflation and economic risks associated with it, and events elsewhere. There’s clearly a reluctance to let go of a safe haven and inflation hedge that’s been so sought after this year.

Bitcoin slips again after the Fed minutes

Bitcoin has come under pressure alongside other risks assets as a hawkish Fed has sapped demand for the cryptocurrency. It fell more than 4% on Wednesday and is down a little shy of 2% today. The crypto conference in Miami could have driven some excitement in the space that may have benefited the price, or so goes the narrative anyway, but that doesn’t appear to be happening this time around. I’m sure President Bukele is only seeing the positives in the latest downturn.

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

Crude Oil

Oil Prices Surge as Hurricane Threat Looms Over U.S. Gulf Coast

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Oil jumped in Asian trading on Monday as a potential hurricane system approached the U.S. Gulf Coast, and as markets recovered from a selloff following weaker-than-expected U.S. jobs data on Friday.

West Texas Intermediate crude oil rose 72 cents, or 1.06%, to $68.39 a barrel while Brent crude oil was up 71 cents, or 1%, at $71.77 a barrel.

Prices had gained as much as $1 during early Asian trading before pulling back.

Analysts said the bounce was in part a reaction to a potential hurricane in the U.S. Gulf Coast.

A weather system in the southwestern Gulf of Mexico is forecast to become a hurricane before it reaches the northwestern U.S. Gulf Coast, the U.S. National Hurricane Center said on Sunday.

The U.S. Gulf Coast accounts for some 60% of U.S. refining capacity.

“Sentiment recovered somewhat from last week’s selloff,” said independent market analyst Tina Teng.

At the Friday close, Brent had dropped 10% on the week to the lowest level since December 2021, while WTI fell 8% to its lowest close since June 2023 on weak jobs data in the U.S.

A highly anticipated U.S. government jobs report showed nonfarm payrolls increased less than market watchers had expected in August, rising by 142,000, and the July figure was downwardly revised to an increase of 89,000, which was the smallest gain since an outright decline in December 2020.

A decline in the jobless rate points to the Federal Reserve cutting interest rates by just 25 basis points this month rather than a half-point rate cut, analysts said.

Lower interest rates typically increase oil demand by spurring economic growth and making oil cheaper for holders of non-dollar currencies.

But weak demand continued to cap price gains.

The weakness in China is driven by economic slowdown and inventory destocking, Jeff Currie, chief strategy officer of energy pathways at U.S. investment giant Carlyle Group, told the APPEC energy conference in Singapore on Monday.

Refining margins in Asia have slipped to their lowest seasonal levels since 2020 on weak demand from the two largest economies.

Fuel oil exports to the U.S. Gulf Coast fell to the lowest level since January 2019 last month on weaker refining margins.

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Crude Oil

Oil Prices Rebound on OPEC+ Output Delay Talks and U.S. Inventory Drop

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Crude oil - Investors King

Oil prices made a modest recovery on Thursday on the expectations that OPEC+ may delay planned production increases and the drop in U.S. crude inventories.

Brent crude oil, against which Nigerian oil is priced, rose by 66 cents, or 0.9% to $73.36 per barrel while U.S. West Texas Intermediate (WTI) crude appreciated by 64 cents or 0.9% to $69.84 per barrel.

The rebound in oil prices was a result of the American Petroleum Institute (API) report that revealed that the U.S. crude oil inventories had fallen by a surprising 7.431 million barrels last week, against analysts 1 million barrel decline projection.

The decline signals better than projected demand for the commodity in the United States of America and offers some relief for traders on global demand.

John Evans, an analyst at PVM Oil Associates, attributed the rebound in crude oil prices to the API report.

He said, “There is a pause of breath and light reprieve for oil prices.”

Also, discussions within the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, are fueling speculation about a potential delay in planned output increases.

The group was initially expected to increase production by 180,000 a day in October 2024.

However, concerns over softening demand in China and potential developments in Libya’s oil production have prompted the group to reconsider its strategy.

Despite the recent rebound, analysts caution that lingering uncertainties around global oil demand may continue to weigh on prices in the near term.

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Energy

Power Generation Surges to 5,313 MW, But Distribution Issues Persist

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Nigeria’s power generation continues to get better under the leadership of President Bola Ahmed Tinubu.

According to the latest statement released by Bolaji Tunji, the media aide to the Minister of Power, Adebayo Adelabu, power generation surged to a three-year high of 5,313 megawatts (MW).

“The national grid on Monday hit a record high of 5,313MW, a record high in the last three years,” the statement disclosed.

Reacting to this, the Minister of Power, Adebayo Adelabu, called on power distribution companies to take more energy to prevent grid collapse as the grid’s frequency drops when power is produced and not picked by the Discos.

He added that efforts would be made to encourage industries to purchase bulk energy.

However, a top official of one of the Discos was quoted as saying that the power companies were finding it difficult to pick the extra energy produced by generation companies because they were not happy with the tariff on other bands apart from Band A.

“As it is now, we are operating at a loss. Yes, they supply more power but this problem could be solved with improved tariff for the other bands and more meter penetration to recover the cost,” the Disco official, who pleaded not to be named due to lack of authorisation to speak on the matter, said.

On Saturday, the ministry said power generation that peaked at 5,170MW was ramped down by 1,400MW due to Discos’ energy rejection.

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