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Profit-Taking Pause For Breath

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Oil

By Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA

A wave of profit-taking swept markets overnights as US bond yields gave back some recent gains. That prompted traders to trim long US Dollar positions, with the dollar index and USD/JPY having a tough day at the office. I had noted this week that both were overextended on a short-term technical basis, so the correction itself wasn’t much of a surprise. Notably, neither oil, gold, or Asian FX showed much reaction. In fact, the price action by the Chinese Yuan screamed the opposite.

US equity markets moved lower after the bonfire of Netflix’s share price spread to other companies exposed to the streaming sector. But equity markets are a FOMO law unto themselves, and I don’t believe that was what prompted the reversals elsewhere. Tesla blew its Q1 results out of the water after the markets closed, sending its share price 5.0% higher, and that will likely underpin equities in Asia today. It also triggered another $23 billion of awards into Elon Musk’s bank account apparently, so I guess he can tweet that “50% of funding is achieved” vis-à-vis his Twitter bid.

More likely was a combination of factors that prompted the US bond, and US Dollar reversal. The US 10-year bond auction got away at 3.095%, and the strong bid-to-cover ratio hinted that 3.0% was a magic number for institutional investors to start slurping up US yield. (in bond markets, yields fall when prices go up) The Fed’s Daly repeated the 2.50% terminal Fed Funds mantra, further mollifying the Bullard ultra-hawkish nerves previously. US Existing Home Sales also fell once again on a monthly basis, and it will be interesting to see the data from the New Home and Pending Home Sales next week.  Finally, the Fed Beige Book suggested that wage pressures could be easing. In totality, it added up, at least temporarily, to a few decent reasons to pause for breath.

In Asia, regional markets are likely to take a wait-and-see approach, to see if the corrections overnight in US markets are a one-day wonder or will extend for some days yet. The Fed uber-hawk, James Bullard, speaks again tonight and he may continue to be a bull in a monetary China shop. The final runoff for the French presidency this weekend is likely to limit any gains by European markets, currency, or equities, as will the progress of Russia’s new offensive in Ukraine.

Asia-Pacific data is thin on the ground today. New Zealand inflation hit 6.90% YoY; levels not seen since 1990 when I was a fresh-faced young currency trader in Wellington. Ironically, the British bank I worked for had a higher credit rating than the New Zealand government in those days. (it doesn’t now) The New Zealand Dollar is 0.40% lower today as the markets price the ever-deeper hole the Reserve Bank of New Zealand has dug itself, and the shrinking options it has to extricate itself. Most of them lead to a hard landing I believe.

South Korean March PPI rose 1.30% MoM and rose to 8.80% YoY. Unsurprisingly, energy prices were the main culprit, something that all of Asia will continue grappling with this year. Japan’s Foreign Bond Investment also fell with Foreign Stock investment easing to Yen 407 billion. Headlines are dominated by the Bank of Japan placing another unlimited 10-year JGB bid at 0.25% to cap yields again today, the main reason why I believe the USD/JPY dip will be temporary. Far more market reaction should come from its release of the Jibun Bank PMIs tomorrow, and its core and headline inflation rates. Core Inflation is expected to rise to an eye-watering 0.80% YoY. (by Japanese standards) Expect QE forever to be as intact tomorrow in Japan, as it is today.

The rest of the day’s calendar is non-descript in Asia, leaving markets vulnerable to headline-driven volatility, especially as China’s PBOC set a neutral USD/CNY fix today, after the weaker one yesterday. China’s President Xi Jinping speaks today, but I can’t imagine he will signal a rollback of Covid-zero. Eurozone Inflation this evening has upside risks and a print above 7.50% could see Euro selling emerge again as ECB officials stay dovish, and with a war on its Eastern border. In addition to James Bullard, Fed Chairman Jerome Powell has two speaking engagements today. An “on message” Powell should cancel out any hawkish Bullard comments and could see the correction lower by US yields and the US Dollar continue.

Asian equities get a Tesla fast charge.

With the exception, once again, of China, Asian markets are tracking higher today after Tesla announced impressive results after the New York markets closed. In New York overnight, the meltdown of the Netflix stock price had spread to other companies associated with the streaming sector. That led to a mixed close in New York as the tech-heavy Nasdaq took a beating. The S&P 500 fell by 0.06%, the Nasdaq tumbled by 1.22%. That prompted a growth to value safety move sending the Dow Jones 0.72% higher.

Tesla’s impressive results saw earnings per share rise to $3.22 versus $2.26 expected. Revenue rose to $18.76 billion versus $17.80 billion expected. That was enough to send Tesla’s stock 5.0% higher in after-hours trading and has reversed the negative tone on US markets and has had a positive knock-on effect in Asia. S&P 500 futures are 0.50% higher, Nasdaq futures are 0.75% higher, while Dow futures have risen by 0.35%.

In Asia, Japan’s Nikkei 225 has risen by 1.15%, helped by the Bank of Japan conducting rate capping operations in the JGB market. South Korea’s Kospi is 0.60% higher, but Taipei has only managed a 0.15% gain, likely due to weak Mainland China equity markets today. Singapore has risen by 0.50%, Kuala Lumpur by 0.15%, Jakarta by 0.70%, Bangkok by 0.30%, and Manila is unchanged. Australia’s All Ordinaries has risen by 0.30%, and the ASX 200 by 0.40%.

China’s markets continue to underperform, weighed down by growth fears and the Covid-zero policy on the mainland, while US delisting fears on dual-listed equities continue to hamstring Hong Kong markets as well. The Shanghai Composite has fallen by 0.95%, the CSI 300 is 0.70% lower, and the Hang Seng has slumped by 1.15%. Any signs of an easing of Covid-zero policies in President Xi’s speech today could provide a welcome bounce.

European markets managed to rally overnight after an ECB official signalled, he remained dovish on rate hikes. With the Ukraine conflict entering its next phase, a French presidential election this weekend, and potentially ugly inflation data tomorrow; any sustained rally by European equities is unlikely.

US Dollar falls overnight.

A retreat by US yields overnight set off an uneven long-covering move in currency markets, pushing the dollar index sharply lower by 0.65% to 100.34. Having held resistance at 101.00, and with the relative strength index (RSI) at very overbought levels, the dollar index was vulnerable to a pullback. In Asia, the index has clawed back some of its losses, rising 0.19% to 100.53.  Support is at 100 and then between 99.40 and 99.55, with initial resistance still at 101.00.

A suitably not-to-hawkish Jerome Powell this evening could give room for more easing of US yields and see the US Dollar correction continue for a few more days. Notably, the US Dollar pullback was mostly limited to the DM space with EM in some cases, continuing to fall versus the greenback.

The Euro and Sterling both gained on US Dollar weakness overnight. EUR/USD rose 0.62% to 1.0855, reclaiming the long-term support line around 1.0800. It has eased to 1.0832 in Asia. GBP/USD rose 0.53% to 1.3068 before retreating to 1.3050 in Asia. EUR/USD still risks a close below 1.0800 on a weekly basis which would be a very negative technical development. Only a close above 1.0950 eases that risk. Likewise, GBP/USD needs to close above 1.3100 to ease downside pressure. The price action in Asia makes an unconvincing case in this respect.

USD/JPY tumbled by 0.80% to 127.85 overnight, as US yields fell and with the BOJ standing in the market to cap JGB yields at 0.25%. US 10-year futures have headed lower in Asia, narrowing the rate differential, and it speaks volumes that USD/JPY has quickly by 0.45% to 128.40 in Asia this morning. That further reinforces the theory that this is a temporary US Dollar correction. The RSI remains very overbought, and a deeper correction is possible. Support remains at 127.00 and 126.00, with resistance at 129.50 and 130.00.

AUD/USD and NZD/USD booked just 1.00% plus gains overnight, rising to 0.7450 and 0.6808.  Both are retreating in Asia though with AUD/USD falling 0.37% to 0.7425, and NZD/USD falling 0.43% to 0.6780.  AUD/USD continues holding hold above critical support at 0.7320 and looks the more constructive of the two, thanks in no small part, to firm coal and other resource prices. NZD/USD remains well below its breakout line, today at 0.6840 and remains in danger of retesting 0.6700 as inflation hits 32-year highs, with the RBNZ perceived as well behind the inflation fight.

In a stark warning to US Dollar bears, the Chinese Yuan sell-off accelerated overnight and has continued in Asia today. USD/CNY and USD/CNH rose 0.40% to 6.41900 and 6.4450, adding another 0.35% to 6.4410 and 6.4650 today. That is despite the PBOC setting a neutral USD/CNY fixing this morning. Since both onshore and offshore USD/Yuans broke through one-year resistance lines this week, the selloff has accelerated. Negativity around China’s Covid-zero policy is partly responsible, but it appears the PBOC is quite happy to nude the trend along. A weaker currency appears preferable to wider domestic stimulus it seems now. We could well see 6.5000 by next week.

The sharp fall by the Yuan over the last 24 hours has set off a wave of Asian FX selling today. USD/KRW has risen by 0.30%, USD/SGD, USD/THB, USD/TWD, and USD/MYR are all around 0.20% higher. It is also a warning that USD/JPY sellers should not get to wedded to their positions.  If China is now embarking on a Yuan weakening path in a rear-guard action to support growth, Asian regional currencies now face even more challenges as their monetary policies diverge from the United States. More weakness lies ahead.

Oil markets are surprisingly quiet.

Oil markets traded sideways overnight, with China’s growth fears offsetting a large drop in official US crude inventories overnight. With the geopolitical news ticker fairly quiet, oil markets contented themselves with consolidating the previous day’s gains. Brief forays to the downside were quickly reversed leaving Brent crude almost unchanged at $107.30 a barrel, and WTI at $102.40 a barrel.

In Asia, the lack of volatility overnight has left local traders in a calmer frame of mind, reducing the inclination to chase prices higher. Brent crude is just 0.40% higher at $107.70, and WTI is 0.60% higher at $103.00 a barrel. It seems that regional buyers are happy to wait for pullbacks and a quiet session appears likely for Asia.

I continue to expect that Brent will remain in a choppy $100.00 to $120.00 range, with WTI in a $95.00 to $115.00 range. Brent crude has further support at $96.00, and WTI at $93.00 a barrel. A potential European oil embargo on Russia next week after this weekend’s French elections, could see a move towards the top of the range.

Gold’s steady overnight.

Gold prices remained steady overnight, but notably, it failed to rally as US yields and the US Dollar both retreated. Gold booked a modest 0.40% gain to $1957.50 an ounce, which it has mostly unwound in Asia as the US Dollar rebounds. Gold has fallen by 0.30% to $1951.80 an ounce in Asia.

Gold still looks vulnerable and failure of $1940.00 could see more speculative long positions getting culled and gold falling to $1915.00 an ounce. However, gold’s price action of the past few weeks has been quietly signalling those risks, be they inflation or geopolitical, have been increasing. Nothing I can see has changed that fact, and thus, the deeper correction lower could be an opportunity to load up again at much better levels.

As for the technical picture, gold still has resistance at $2000.00 an ounce, and I believe option-related selling there will be a strong initial barrier. However, if $2000.00 is cleared, gold could quickly gap higher to $2020.00 an ounce quickly, and potentially, retest of $2080.00 an ounce. Failure of $1915.00 and $1880.00 could see a deeper loss to $1800.00 an ounce.

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.

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Energy

Nigeria Partners with ECOWAS and Morocco to Launch $26B African Gas Pipeline

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Gas-Pipeline

The Nigerian government, in partnership with the Economic Community of West African States (ECOWAS), Morocco, and Mauritania, has announced plans to advance the $26 billion African Atlantic Gas Pipeline project to drive economic growth across Africa.

This development was revealed on Monday, November 5, by Mele Kyari, Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPCL), at the ECOWAS Inter-Ministerial Meeting on the Nigeria-Morocco Gas Pipeline Project.

Speaking at the meeting, which was attended by ECOWAS Ministers of Hydrocarbons and Energy as well as representatives from Morocco and Mauritania, Kyari stated that, once completed, the project will connect 13 African countries.

Represented by Olalekan Ogunleye, NNPC’s Executive Vice President for Gas Power & New Energy, Kyari said this will be Africa’s largest pipeline project.

Ogunleye confirmed that progress has been made with the front-end engineering design completed, the phase two study finalized, and work ongoing for environmental and social impact assessments as well as land acquisition and resettlement.

He emphasized NNPC’s readiness to execute the project: “Today, we come together to make significant progress in the African Atlantic gas pipeline project, which is a transformative initiative connecting at least 13 African nations in shared prosperity and development. These achievements underscore our capability to deliver this landmark project, supported by strong regional collaboration.”

Ekperikpe Ekpo, Minister of State for Petroleum Resources (Gas), described the project as a game-changer for the regional economy, stating, “We stand at a critical juncture where these agreements can reshape our energy landscape, strengthen our economies, and uplift our people.”

He also highlighted that the project will increase Africa’s presence in the global gas market, noting that “the agreements demonstrate a strong commitment to advancing hydrocarbon and energy trade across ECOWAS, enhancing access to natural gas in West Africa, and expanding Africa’s global footprint in the gas market.”

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Crude Oil

Nigerian Army Seizes 700,000 Liters of Stolen Petroleum in Sweeping Raid Across Four States

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In a series of raids across Rivers, Bayelsa, Akwa Ibom, and Delta states, troops from the 6th Division of the Nigerian Army seized 700,000 liters of stolen petroleum products, sealed 29 illegal refining sites, and arrested 24 suspected oil thieves.

In a statement issued by the Division’s Public Relations Officer, Lt. Col. Danjuma Jonah, it was noted that 14 boats involved in crude oil theft were also destroyed during the operation.

Jonah disclosed that the raids were conducted between October 28 and November 3, 2024.

He revealed that the troops intercepted a large wooden boat carrying over 150,000 liters of stolen crude oil in the Kula area of Akuku-Toru Local Government Area of Rivers State.

Providing a breakdown of the operation, Jonah stated, “Another boat carrying 50,000 liters of crude oil was seized, while three illegal refining sites were dismantled, and cooking pots containing 20,000 liters of stolen diesel were confiscated. Troops also dismantled ten illegal refining sites in Kay and Abesa in Akuku-Toru LGA, seizing 400,000 liters of illegally refined diesel.”

In Bayelsa State, soldiers deactivated two illegal refining sites at Boma Creek in Southern Ijaw LGA, recovering storage tanks holding over 2,500 liters of stolen crude. Similarly, operations in Obughene Creek in Southern Ijaw yielded over 4,500 liters of stolen crude, while another 3,000 liters of illicit product were seized at West Boma Creek.

In Akwa Ibom State, troops intercepted two Toyota Camrys loaded with illegally refined diesel, concealed in nylon bags, totaling 3,000 liters. The vehicles were stopped along the Ikot Abasi-Abak road, and the drivers were detained.

In Delta State, multiple raids were conducted, including the interception of a tricycle in Kwale, Ndokwa West LGA, carrying stolen iron pipes allegedly taken from decommissioned Oando pipelines.

Another raid in Patani town uncovered a storage dump containing 40 jerricans of stolen products, while troops patrolling Uro Community waterways intercepted a wooden boat with 200 sacks of premium motor spirit,” he concluded.

The statement added that suspects arrested during the raids have been handed over to relevant authorities for prosecution.

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Crude Oil

OPEC+ Supply, Trump-Harris Election Face Off Lend Support to Oil Prices

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Crude oil

The decision of the Organisation of the Petroleum Exporting Countries and its allies, OPEC+ to delay plans to increase output for another month and the close call of the presidential elections in the United States triggered a 2 percent rise in oil prices.

Brent futures were up $1.98, or 2.7 percent at $75.08 a barrel while the US West Texas Intermediate (WTI) crude rose $1.98, or 2.85 percent to $71.47.

OPEC+ said it would extend its output cut of 2.2 million barrels per day for another month in December at a meeting on Sunday.

Saudi Arabia and Russia, as well as Algeria, Iraq, Kazakhstan, Kuwait, Oman and the United Arab Emirates (UAE) agreed to extend the November 2023 voluntary production adjustments of 2.2 million barrels per day for one month until the end of December 2024.

The move is aimed at boosting oil prices amid uncertain demand and accelerating supply, with an eye on the imminent US presidential election, though analysts predict a limited impact.

Also speaking on Monday, OPEC’s Secretary General, Mr Haitham Al Ghais said on Monday that OPEC remains very positive on demand for oil in both the short and long term.

The market has also shifted focus to the American presidential election between Democratic presidential nominee and current Vice President, Kamala Harris and Republican Donald Trump on Tuesday (November 5).

So far, the outcome has shown that the election is tight as it could take days after voting ends to know the eventual winner.

The market will also be looking at the developments in the Middle East, especially with anticipation that Iran was preparing to attack Israel from Iraq within days.

Markets were also watching a new tropical storm that was forecast to form on Monday in the Caribbean and threaten offshore oil production along the Gulf of Mexico.

Oil companies like Shell have moved its non-essential personnel from six platforms, adding it currently expects no other impacts on its production across the Gulf of Mexico.

There will be anticipation of what the US Federal Reserve will do at the next meeting on Thursday with expectations high that the US central bank will cut interest rates by 25 basis points.

Also, investors will be looking to China where the government is expected to approve additional stimulus to boost the slowing economy in the world’s largest oil importer.

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