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Markets Today – Tesla, Fed, ECB, BoE, Oil, Gold, Bitcoin

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

Stock markets are pushing higher again on Thursday, with the Nasdaq this time taking part after Tesla reported strong numbers for the first quarter.

The doom and gloom following Netflix’s earnings report didn’t last long in another sign of investor resilience to bouts of negativity. Of course, it’s worth noting that it came in what has otherwise been a strong start to earnings season, something Tesla on Wednesday contributed to as it shrugged off the various challenges it’s facing from chip shortages to Chinese lockdowns.

The Tesla numbers really were very encouraging despite the incredibly challenging environment for automakers. Higher revenue, earnings and delivery forecasts are all music to the ears of investors and even the long waiting lists highlight just how much demand there is for a Tesla, despite the long wait time.

Powell, Lagarde and Bailey comments eyed

The primary focus for investors right now continues to be what central banks are doing and whether their efforts will bring inflation back to a more acceptable level. They’re moving at very different speeds; in the BoJ’s case, they’re effectively going in reverse. But slowly but surely, most are heading in the same direction and picking up the pace.

Commentary from policymakers has become increasingly hawkish recently, most notably in the case of the Fed and ECB. Both heads – Jerome Powell and Christine Lagarde – will appear at an IMF forum today, while the BoE Governor Andrew Bailey is due to speak in Washington.

Considering some of the comments we’ve had in recent days from some of the more hawkish members of the various committees, it will be interesting to see just how much those views are shared across them.

Oil higher as EU nears Russian ban

Oil prices are heading higher again, up more than 2%, as reports suggest the EU is nearing a framework for phasing out Russian oil imports. Given how big a market it is for Russia, accounting for roughly half its exports, that will come as a real blow to the Kremlin. Except for the fact that the devil will be in the detail and I suspect it won’t be the hammer blow that it appears at first sight.

Germany has suggested it will half its Russian oil imports by the summer and end them by the end of the year. While replacing such a massive partner won’t be easy, that does buy it time to explore alternative markets, albeit probably at a steep discount. Oil is also only one major source of revenue for Russia; there’s still little talk of gas embargos which would really hurt the Kremlin.

Still, oil prices are creeping higher again but remain pretty much in the middle of the range they’ve traded within for the last month.

Gold slips as yields continue higher

Yields are creeping higher again amid a raft of hawkish commentary from a variety of central banks that appears to be paving the way for increasingly aggressive action in the month ahead. This appears to be weighing on gold which has slipped back below $1,950 after a strong rally earlier this month.

Perhaps the rally was driven by higher inflation expectations and the hawkish commentary is addressing those concerns. It’s a fine balancing act when so many are questioning whether the Fed can manufacture the soft landing it desires. Time will tell whether this optimism will pay off.

Can bitcoin build on recent momentum?

Bitcoin is enjoying a fourth day of gains just after it survived a break of a potentially key support level. The resilience shown to the move below $40,000 was impressive and potentially indicative of the remaining bullishness in the space, despite the uncertainty elsewhere. The Nasdaq has had a more turbulent week which bitcoin has managed to shrug off; maybe a sign of it distancing itself from the link between the performance of the two. Whether it can sustain that we’ll see as there’s one thing both still have in common, they’re viewed as risky assets, albeit with bitcoin very much at the higher end of the scale.

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.

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Gold

Gold Steadies After Initial Gains on Reports of Israel’s Strikes in Iran

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Gold, often viewed as a haven during times of geopolitical uncertainty, exhibited a characteristic surge in response to reports of Israel’s alleged strikes in Iran, only to stabilize later as tensions simmered.

The yellow metal’s initial rally came on the heels of escalating tensions in the Middle East, with concerns mounting over a potential wider conflict.

Spot gold soared as much as 1.6% in early trading as news circulated regarding Israel’s purported strikes on targets in Iran.

This surge, reaching a high of $2,400 a ton, reflected the nervousness pervading global markets amidst the saber-rattling between the two nations.

However, as the day progressed, media reports from both countries appeared to downplay the impact and severity of the alleged strikes, contributing to a moderation in gold’s gains.

Analysts noted that while the initial spike was fueled by fears of heightened conflict, subsequent assessments suggesting a less severe outcome helped calm investor nerves, leading to a stabilization in gold prices.

Traders had been bracing for a potential Israeli response following Iran’s missile and drone attack over the weekend, raising concerns about a retaliatory spiral between the two adversaries.

Reports of an explosion in Iran’s central city of Isfahan further added to the atmosphere of uncertainty, prompting flight suspensions and exacerbating market jitters.

In addition to geopolitical tensions, gold’s rally in recent months has been underpinned by other factors, including expectations of US interest rate cuts, sustained central bank buying, and robust consumer demand, particularly in China.

Despite the initial surge followed by stabilization, gold remains sensitive to developments in the Middle East and broader geopolitical dynamics.

Investors continue to monitor the situation closely for any signs of escalation or de-escalation, recognizing gold’s role as a traditional safe haven in times of uncertainty.

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Commodities

Global Cocoa Prices Surge to Record Levels, Processing Remains Steady

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Cocoa futures in New York have reached a historic pinnacle with the most-active contract hitting an all-time high of $11,578 a metric ton in early trading on Friday.

This surge comes amidst a backdrop of challenges in the cocoa industry, including supply chain disruptions, adverse weather conditions, and rising production costs.

Despite these hurdles, the pace of processing in chocolate factories has remained constant, providing a glimmer of hope for chocolate lovers worldwide.

Data released after market close on Thursday revealed that cocoa processing, known as “grinds,” was up in North America during the first quarter, appreciating by 4% compared to the same period last year.

Meanwhile, processing in Europe only saw a modest decline of about 2%, and Asia experienced a slight decrease.

These processing figures are particularly noteworthy given the current landscape of cocoa prices. Since the beginning of 2024, cocoa futures have more than doubled, reflecting the immense pressure on the cocoa market.

Yet, despite these soaring prices, chocolate manufacturers have managed to maintain their production levels, indicating resilience in the face of adversity.

The surge in cocoa prices can be attributed to a variety of factors, including supply shortages caused by adverse weather conditions in key cocoa-producing regions such as West Africa.

Also, rising demand for chocolate products, particularly premium and artisanal varieties, has contributed to the upward pressure on prices.

While the spike in cocoa prices presents challenges for chocolate manufacturers and consumers alike, industry experts remain cautiously optimistic about the resilience of the cocoa market.

Despite the record-breaking prices, the steady pace of cocoa processing suggests that chocolate lovers can still expect to indulge in their favorite treats, albeit at a higher cost.

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Crude Oil

Dangote Refinery Leverages Cheaper US Oil Imports to Boost Production

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Crude Oil

The Dangote Petroleum Refinery is capitalizing on the availability of cheaper oil imports from the United States.

Recent reports indicate that the refinery with a capacity of 650,000 barrels per day has begun leveraging US-grade oil to power its operations in Nigeria.

According to insights from industry analysts, the refinery has commenced shipping various products, including jet fuel, gasoil, and naphtha, as it gradually ramps up its production capacity.

The utilization of US oil imports, particularly the WTI Midland grade, has provided Dangote Refinery with a cost-effective solution for its feedstock requirements.

Experts anticipate that the refinery’s gasoline-focused units, expected to come online in the summer months will further bolster its influence in the Atlantic Basin gasoline markets.

Alan Gelder, Vice President of Refining, Chemicals, and Oil Markets at Wood Mackenzie, noted that Dangote’s entry into the gasoline market is poised to reshape the West African gasoline supply dynamics.

Despite operating at approximately half its nameplate capacity, Dangote Refinery’s impact on regional fuel markets is already being felt. The refinery’s recent announcement of a reduction in diesel prices from N1,200/litre to N1,000/litre has generated excitement within Nigeria’s downstream oil sector.

This move is expected to positively affect various sectors of the economy and contribute to reducing the country’s high inflation rate.

Furthermore, the refinery’s utilization of US oil imports shows its commitment to exploring cost-effective solutions while striving to meet Nigeria’s domestic fuel demand. As the refinery continues to optimize its production processes, it is poised to play a pivotal role in Nigeria’s energy landscape and contribute to the country’s quest for self-sufficiency in refined petroleum products.

Moreover, the Nigerian government’s recent directive to compel oil producers to prioritize domestic refineries for crude supply aligns with Dangote Refinery’s objectives of reducing reliance on imported refined products.

With the flexibility to purchase crude using either the local currency or the US dollar, the refinery is well-positioned to capitalize on these policy reforms and further enhance its operational efficiency.

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