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

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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