By Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA
New York had a relatively quiet session overnight, with Europe’s announcement that its next round of sanctions would include Russian coal imports, having no impact on energy prices. A relatively slow calendar and few new developments from Eastern Europe saw Wall Street equities reverse intra-day losses to close slightly higher, long-dated US yields edged higher, and the US Dollar booked very modest gains.
St Louis Federal Reserve President Bullard was the latest FED talking head to come out with a series of hawkish statements on future monetary policy. The fact that equities recovered intraday losses suggests that the 225 basis points of Fed Funds hikes futures markets have now priced in could be enough for now. It is the Fed’s battle to lose, not win. That could see the US Dollar rally pause for breath over the next fortnight, but I believe the real stress point will be the Federal Reserve’s quantitative tightening, slated for a May start, and the appetite from the market to absorb the sales.
In Asia, markets are growing warier about China as the Shanghai lockdown drags on and it reports over 24,000 virus cases today. China’s Covid-zero policy continues to be its Achilles heel although there are plenty of other reasons to be a little cautious. A serious spread outside of its finance and commercial to other large cities will be a big headwind for China’s growth, China stocks, and by default eventually, much of Asia.
Despite talking up assisting SMEs and propping up the stock market, little has happened since the initial comments from Premier Li Keqiang. The PBOC has set neutral USD/CNY fixes this week and has net drained CNY 580 bio from the system this week via open market operations. Perhaps some could be interpreted as draining excess liquidity post this week’s two-day holiday, but until China backs up its rhetoric with action, much like the Federal Reserve ironically, the environment for China equities will be challenging. We could see the 1-year MTF trimmed soon along with a RRR cut.
Data from Asia today has been mostly positive. South Korea’s Current Account rose to $6.42 bio, Japan’s Current Account rose to Yen 1643 bio, while the Philippines’ Current Account deficit fell to $-3.53 bio. The data is from February and thus, is slightly backwards-looking. At that stage, all three were still enjoying the premium from easing virus restrictions with South Korean and Japanese exports booming. However, the data for all three hides surging import costs as the Ukraine war started, and I expect those costs to continue negatively impacting data from the region going forward. That should be enough to distract the Bank of Korea from pencilling in a 0.25% rate hike next week.
Today’s main event in Asia will be the latest Reserve Bank of India interest rate decision. The INR has remained steady in April after a roller-coaster ride in March, but the RBI has shown little regard for the currency in its policy mix over the past 2 years, tolerating stagflationary pressures as the price of keeping the economy going. That is unlikely to change today, especially given the event of the past 6 weeks. Policy rates should be left unchanged at 4.0%.
Otherwise, the data calendar across Europe and the US is decidedly second-tier and quiet. It wouldn’t surprise me if the conditions we are seeing in Asia today continue through to the New York close. If oil keeps falling, equities should finish the week on a positive note, temporarily at least.
Keep an eye on France’s first round of the presidential election runoff this weekend. The election should narrow the second runoff on the 24th of April to President Macron and far-right candidate Marine Le Pen. A strong showing by Ms Le Pen this weekend will send chills through Europe and be another reason to sell Euros and European equities on Monday.
Asian equities are mixed.
Wall Street reversed intraday losses to post some modest gains overnight, with markets seemingly moving past the Brainard shock on Wednesday. With oil prices easing after the details of the IEA reserve release came out, Wall Street staged a modest relief rally. The S&P 500 finished 0.43% higher, the Nasdaq closed 0.06% higher, with the Dow Jones finishing 0.25% higher. Futures on all three indexes are almost unchanged in Asian trading.
That has sparked a relief rally in parts of Asia, although not with the North Asian giants of Japan, China, and South Korea. The Nikkei 225 is flat for the day, with the Kospi down 0.10%. The Shanghai Composite is also down 0.10$ with the CSI 200 unchanged, and Hong Kong down 0.40%. It seems that a flat Nasdaq close and persistent virus nerves around Shanghai are limiting gains on all three.
In regional markets, the picture is more positive, helped by Brent crude falling to $100.00 a barrel. Singapore is retreating as stories run highlighting softening property markets across Asia-Pacific. The big banks have led Singapore 0.75% lower. However, Kuala Lumpur has risen by 0.25%, Jakarta by 0.75%, and Taipei by 0.40%. Bangkok is just 0.20% lower, with Manila climbing 1.0% after its trade deficit narrowed. Australian markets are following Wall Streets’ lead and ending the week on a positive note. The ASX 200 and All Ordinaries climbing by 0.50%.
European markets endured another torrid session overnight. But if Brent continues to trade around $100 or lower today, that could be enough to spark a rally into the end of the week, although I expect weekend risk will limit gains.
Currency markets ranging.
Currency markets had a choppy night with decent ranges seen across the majors. Ultimately though, despite all the noise, markets settled fairly close to where they had started. The dollar index closed 0.10% higher at 99.75 with US Dollar strength persisting as US long-dated yields edged higher removing inverse yield curve nerves. The dollar index has climbed to 99.85 in Asia, and I expect weekend risk-hedging to be US Dollar supportive today. A weekly close at these levels implies further gains targeting 100.50 next week.
EUR/USD eased 0.16% lower to 1.0880 overnight, falling another 0.14% to 1.0863 in Asian trading. A weekly close at these levels would be ominous for the single currency, with multi-year support close by at 1.0800. Failure signals more losses to 1.0600 and 1.0300 initially. Resistance is now at 1.1200, with longer-term resistance at 1.1300. Sterling, meanwhile, has consolidated at 1.3070 this week but a loss of 1.3000 signals another round of losses targeting 1.850 and 1.2700.
USD/JPY edged 0.15% higher to 123.97 overnight, popping up to 124.25 today before retreating to 123.95. If seems when, and not if USD/JPY will retest 125.00 now. That may have to wait until next week, though, as traders don’t seem keen on risking BOJ-speak above 124.00 for now, especially with momentum in other major currencies muted today. That said, any drop to 123.50 should find plenty of keen dip buyers.
AUD/USD and NZD/USD have edged lower overnight to 0.7480 and 0.6880 and upward momentum seems to have stalled for now. Failure of supports at 0.7450 and 0.6865 will signal a deeper correction with a lot of good news priced into both currencies. The NZD/USD faces deeper downside risks next week if the RBNZ policy decision is not a 0.50% hike, and the statement is perceived as not hawkish enough.
Asian currencies remain Sleepless in Singapore overnight, with another neutral USD/CNY fixing by the PBOC continuing the sideways consolidation. Some weakness has crept into regional currencies today, led by the THB and the NTD as the US Dollar has strengthened across the board in Asia. I suspect ongoing China Covid-zero concerns, and weekend Ukraine/Russia risk hedging are the cause of the cautiousness today.
Oil prices ease in Asia.
Oil prices traded in a $5.0 range overnight, but despite the overcaffeinated traders of the oil market raising their blood pressures intraday, both Brent and WTI ultimately settled almost unchanged. This is as good a reason to my readers to not get caught up in short-term market moves generally, as any. Brent crude fell 0.30% to $101.40 a barrel, and WTI finished 1.35% lower at $97.00.
Oil is softening in Asia today with regional buyers absent for a change from the open. It seems that China announcing 24,000 new virus cases, and no end to the Shanghai lockdown, has spooked buyers. Markets fear deeper economic disruption, and by default, lower China energy consumption, weighing on prices. Rent crude has slipped through $100.00 a barrel, falling 1.50% to $99.85 a barrel. WTI has fallen by 1.50% to $95.55 a barrel.
With the US and IEA SPR releases out there and priced in, it seems that China is driving the bearish price action. Brent and WTI have fallen to the bottom of my ranges, but I expect Brent to remain in a choppy $100.00 to $120.00 range, with WTI a $95.00 to $115.00 range. Only a serious virus escalation in China changes that outlook.
Gold’s consolidation continues.
Gold continued its sideways trading overnight. Despite the US Dollar and US yields edging higher, gold still finished 0.30% higher at $1931.50 an ounce. Gold is comatose in Asia today, easing 0.10% lower to $1929.70. Gold has confined itself to a rough $1920.00 to $1940.00 an ounce range this week and is showing little proclivity to react to geopolitical events or moves in the US Dollar or US bond yields. You could interpret that as either bullish or bearish for gold.
For my part, despite the weeklong holding pattern, I believe the risks are still skewed to the downside for gold, especially if US yields and the US Dollar keep climbing. Only a rally through $1970.00 changes that outlook. Failure of $1915.00 an ounce will signal a retest of important support at $1880.00. Failure of $1880.00 should see a capitulation of long positions, extending losses to the $1800.00 region.
African Energy Chamber to Host Energy Transition Forum at The 2022 Energy Week
African Energy Chamber (AEC) says it will host the Energy Transition Forum, in partnership with public and private sector organisations, government representatives, energy stakeholders and investors in October.
In a statement made available to Investors King AEC stated that “The Energy Transition Forum will address critical issues such as the lack of adequate funding, the diversification of the energy mix, workforce development, and regulatory reforms necessary to enable Africa to expand its energy sector to address energy security, affordability, access, and sustainability matters”.
“With some 600 million people across the continent living in energy poverty and over 900 million without access to clean cooking, Africa needs to exploit all of its vast natural resources in order to make energy poverty history by 2030. In this respect, stakeholders across the continent are opting for an integrated approach to developing energy resources whereby every resource is utilized in order to kickstart economic growth and electrification. With over 125.3 billion barrels of crude oil, 620 trillion cubic feet of gas, and nearly 16.4 billion short tons of coal, the continent is well-positioned to drive economic growth,” it added.
Executive Chairman of the AEC, NJ Ayuk, said: “With nearly 66 per cent of the world’s population living without electricity access based in Africa, the continent needs to ramp up the production of all its energy resources including gas, oil, wind and solar to ensure energy poverty is history by 2030. The AEC is honored to host the Energy Transition Forum at AEW 2022 where an African narrative of a just and inclusive energy transition that is fit for Africa will be developed. We will go from Cape to Cairo with a well-defined African message. Africans and the energy sector have a rare chance to define the narrative and we must.”
The Energy Transition Forum is bringing together investors, regulatory authorities and energy market players to discuss the role of gas in Africa’s energy future and energy transition. The challenges of limited investments in gas exploration, production, and infrastructure development in gas-rich countries such as Nigeria, Algeria, Egypt, Niger, and Mozambique will also be addressed.
According to the AEC, climate change continues to impact Africa, leading to an increasing number of African countries such as Nigeria, Namibia, Morocco, South Africa, Uganda, and Kenya introducing policy reforms and initiatives to scale up renewable energy penetration in Africa.
Investors King gathered that Nigeria has vowed to achieve climate neutrality by 2060 by increasing the share of natural gas and renewables in its energy mix while Namibia aims to make the development of hydrogen central to its energy policy. At the same time, South Africa has introduced its Hydrogen Society Roadmap to fast-forward the development of local content and hydrogen infrastructure whilst Morocco’s Law 13-09 and Egypt’s net metering scheme aims to expand distributed renewables development.
The chamber added that the AEW 2022, under the theme – “Exploring and Investing in Africa’s Energy Future while Driving an Enabling Environment” will feature high-level meetings and panel discussions where government ministers, investors, academia, and energy market stakeholders will discuss how Africa can attract funding to boost exploration, production and infrastructure development to ensure secure supply while remaining a climate champion.
The African Energy Week is scheduled to take place from 18th – 21st October 2022 in South Africa at Africa’s premier event for the oil and gas sector.
Siemens Announces Plan to Transit From Fossil to Sustainable Energy
Technology giant, Siemens Energy has announced a transit from fossil to sustainable energy through a management restructuring and shares evaluation.
This comes after the company launched a voluntary cash tender offer to acquire all outstanding shares in Siemens Gamesa Renewable Energy, or approximately 32.9 percent of Siemens Gamesa’s share capital which it does not already own.
Chairman of the Supervisory Board of Siemens Energy AG, Joe Kaeser, said: “The full integration of SGRE is an important milestone for Siemens Energy’s positioning as a driver of the energy transition from fossil to sustainable energy solutions.
“This will benefit customers, employees, shareholders, and ultimately society. It is critical that the deteriorating situation at SGRE is being stopped as soon as possible, and the value-creating repositioning starts quickly. The Supervisory Board strongly supports the Executive Boards plans for the integration of SGRE”.
According to a statement from the company, starting from October, the former gas and power segment will be divided into three business areas.
The largest of the new business areas, with sales of around 9 billion euros (9.6 billion dollars), is gas services. This included the gas and large steam turbine business and associated services.
It is followed by grid technologies with sales of 5.8 billion euros in the areas of power transmission and energy storage. The smallest business area is the transformation of the industry with sales of 3.9 billion euros.
Here, the focus was on reducing energy consumption and carbon dioxide emissions in industrial processes from hydrogen to automation and industrial steam turbines to compressors. Logistics, IT and procurement divisions were to be bundled together.
The removal of some levels of management at Siemens Energy was expected to bring faster decision-making processes. Where there were previously up to 11 levels in the firm’s hierarchy, there would be a maximum of six in the future. This would eliminate around 30 per cent of the previous management positions, Siemens Energy said. The employees affected would be given other tasks within the business, according to the statement.
Siemens Energy claims that after full integration, the combined group could see cost synergies of up to EUR 300 million within three years, owing to lower supply chain and logistics costs, aligned project execution, joint and integrated R&D efforts, and cost savings through an optimized administrative setup.
NNPC, Sahara Group To Invest Over N150B in Two Gas Carriers
The Nigerian National Petroleum Company Limited (NNPC) and leading energy conglomerate, Sahara Group have taken delivery of two 23,000 CBM Liquefied Petroleum Gas (LPG) vessels at the Hyundai MIPO Shipyard in Ulsan, South Korea.
The new carriers, the MT BARUMK and MT SAPET, have brought NNPC and Sahara Group’s joint venture investment to over N150 billion ($300 m), bringing the Joint venture’s (JV) gas infrastructure pledge to $1 billion by 2026 closer to reality. MT Sahara Gas and MT Africa Gas were previously part of the fleet. Hyundai MIPO Dockyard, a leading global constructor of mid-sized carriers, produced all four ships.
Recall, Investors King reported that Nigeria earned $868.5 million from gas exports and N13.36 billion from domestic gas sales, according to an examination of the gas revenue statistics and other monthly reports acquired from the Nigerian National Petroleum Company Limited.
Data from the oil firm showed that the Federal Government, through NNPC, garnered the funds from the sale of Natural Gas Liquids/Liquefied Petroleum Gas, as well as Nigeria Liquefied Natural Gas feedstock.
West African Gas Limited (WAGL), a joint venture between NNPC and Oceanbed (a Sahara Group subsidiary), is driving NNPC’s five-year $1 billion investment plan which was announced in 2021, to expedite the decade-long gas and energy transition strategy.
To the joy of visitors, NNPC’s GMD, Mele Kyari, announced that an order for three more new vessels was being finalized, adding, “We have an objective of delivering 10 vessels over the next 10 years. In our energy transformation quest, the NNPC and our partners stand out for their integrity, and our commitment to environmental sustainability is steadfast.”
WAGL and Sahara Group have invested in the JV with MT BARUMK and MT SAPET. WAGL is strengthening its gas fleet and terminal infrastructure, while Sahara Group continues to make significant progress in the development of over 120,000 metric tonnes of storage facilities in 11 African nations, including Nigeria, Senegal, Ghana, Cote d’Ivoire, Tanzania, and Zambia.
“This is another epoch-making achievement for the NNPC and Sahara Group, and we remain firmly committed to delivering more formidable gas projects for the benefit of Nigeria and the entire sub-region,” Kyari said.
Executive Director Sahara Group, Temitope Shonubi stated that “WAGL has successfully operated two mid-sized LPG Carriers MT Africa Gas and MT Sahara Gas in the region in accordance with worldwide standards, transporting over 6 million CBM of LPG across West Africa, with the new vessels, we will be able to accelerate and lead Africa’s energy revolution.”
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