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Meta Makes Asia Feel Better

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Stock - Investors King

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

 

Equity markets are higher in Asia today as US index futures rally after Meta managed to post minuscule growth in user numbers overnight along with robust financials. The results came too late to save OTC trading on Wall Street from a sideways day, but post-close extended trading has allowed the FOMO gnomes, always on the lookout for any sliver of a reason to buy, to work their magic in Asian hours. Nasdaq futures have rallied an impressive 1.25%, dragging S&P minis 0.70% higher.

Still, we shouldn’t rule out Wall Street returning to Seeker’s mode and singing The Carnival Is Over. This evening, both Apple and Amazon release quarterly results and I would argue these are much bigger dogs than Meta. Supply change disruptions, material price inflation and a cloudy outlook on the economic growth front are just some of the potential headwinds for both. I wouldn’t argue against a sparkling set of financials for Q1, but the real gold will be in their forward outlooks. Depending on what they say, today’s equity rally will either be real gold, or fool’s gold.

Looking outside of the tail-chasing circus we know as the equity market; the real world continues to paint a much more cautionary tale. China’s covid-zero concerns continue overhanging Asia, despite more promises of an infrastructure-spending feast from Chinese officials. Adjusted for inflation this year, the actual rise in spending on infrastructure, and thereby growth, isn’t so special on the Mainland.

The Russian ban on gas exports to Bulgaria and Poland sent natural gas prices surging in Europe again, and saw the Euro take another hammering. Oil prices held onto their initial gains from Tuesday after the announcement but didn’t add anything to them. If Russia expands its natural gas bans, it won’t stay that way and there seems to be a great deal of complacency and Ukraine fatigue in the market right now outside of Europe. Oil itself could be about to move lower though, as the Financial Times is running a story saying some of Europe’s largest energy companies are preparing to pay for energy imports via Rouble accounts opened at Gazprombank in Switzerland. If true, it will be a huge win for the Kremlin and pit EU politicians against European private companies. Either way that you look at it, it is unlikely to be supportive of the Euro.

Yesterday’s inflation print above 5.0% in Australia has the market scrambling to pencil in a rate hike from the Reserve Bank of Australia at its meeting next week. I’m still 50/50 on this one, especially with a Federal election due later in the month. June will be a live meeting though. AUD/USD rallied briefly after the inflation release but has since given all of that back. As risk sentiment indicators, the AUD, NZD, and CAD, and one could argue, Her Majesty’s British Pound, have taken a beating recently. Federal Reserve rate hikes, next week’s FOMC meeting, China growth slowdown, global stagflation, the Ukraine/Russia war, one has an all-you-can-eat buffet of risk to choose from at the moment. If you swat out the incessant buzzing from the equity market, other asset classes are universally suggesting a plethora of global headwinds.

Today’s data releases in Asia have been a mixed bag. South Korea Business Confidence in April remained robust at 87. That hasn’t helped the Korean Won though with the South Korean Finance Minister grumbling that the Won had fallen too fast. Expect more intervention from the Bank of Korea ahead. Japan’s Preliminary Industrial Production disappointed, rising just 0.30% in March. However, Retail Sales outperformed, rising by 0.90% in March YoY. An easing of social distancing restrictions in Japan could account for the surprise. All eyes are on the Bank of Japan policy decision due shortly.

The BOJ policy decision will be the highlight of the Asian session unless we get a headline bomb from somewhere. The decision could emerge any moment now but there is zero chance of the BOJ changing course on monetary policy. It will remain ultra-dovish, as evidenced by the BOJ standing in the market this week to buy unlimited amounts of 10-year JGBs to cap yields at 0.25%. In breaking news, the Bank of Japan has left policy unchanged, and the USD/JPY has jumped 1.0% higher to 129.70.

Keep an eye on developments out of Indonesia today. I do love this country, but the rapid policy about-faces by the government can be infuriating. Last night, Indonesia spoofed commodity markets once again, reversing the guidance of the day before that reversed the guidance of the President the day before that, and adding crude and refined palm oil back onto the export ban. That should be good for substitutes like soybean oil but isn’t good news for food and FMCG products globally. Please refer to my note earlier in the week for my views on food nationalism and the potential food crisis in 2022.

Europe releases a swath of second-tier data today, but Eurozone economic, industrial and consumer sentiment indicators, along with German Inflation will be the focus. Eurozone sentiment in April will continue to take a beating for obvious reasons, weighing on the Euro and Eurozone equities. In all likelihood, the Financial Times story on European energy companies capitulating and paying for gas in Roubles will capture the headlines. A collision course between Europe’s leaders and its private sector will be as good a reason to sell into any currency or relief rally as any.

The US releases Advance Q1 GDP this evening. The headline QoQ number is expected to retreat dramatically to 1.10% from 6.90% previously. That doesn’t tell the whole story though thanks to front-loaded inventory distortions. More important will be the consumer components. PCR Advanced Prices data for Q1 has upside risk. A number substantially higher than the previous quarter’s 6.40% will have the Fed tightening noises going up another notch. Having said that, I am sticking to my guns and saying that the Apple and Amazon results will set the tone for the New York session.

Asian equities surge higher with US futures.

Wall Street’s main indexes had a sideways day overnight, finishing almost unchanged from the day before. The Meta results though, have lifted US index futures sharply as Meta rallied by over 15% in extended trading, lifting other tech heavyweights. Nasdaq futures have rallied by 1.25%, S&P 500 futures are 0.70% higher, while the value-orientated Dow futures have risen just 0.20%.

That has been enough to spark a relief rally of sorts in Asia today, although a barrage of infrastructure spending talk in China helped lift the gloom in China markets yesterday. Japan’s Nikkei 225 has risen by 1.0%, with South Korea’s Kospi climbing by 0.60%, while Taipei has rallied by 0.75%.

In China, the Shanghai Composite has gained 0.35%, with the CSI 300 rising by 0.45%. Hong Kong is performing its usual Nasdaq tail-chasing act, rising 1.0% in sympathy today. Mainland equity markets are potentially holding back as mass testing gets underway in Beijing and news that parts of the port city of ​ ​ Qinhuangdao have been locked down. China’s Covid-zero issues have not gone away.

In regional markets, Singapore has risen by just 0.20%, Kuala Lumpur is 0.55% higher, with Jakarta gaining 0.45%. Bangkok is 0.10% higher and Manila has added 0.45%. Australian markets have climbed on the Meta bandwagon, the ASX 200 and All Ordinaries climbing by 0.95%.

The Financial Times story suggests a Rouble payment capitulation by European energy companies may give European stocks a reason to open higher today. The relief is likely to be short-lived as the obvious conflict between Europe’s political masters and its private sector will be a major test of European unity. In the US, results from Apple and Amazon will set the tone for the Wall Street session.

Japanese Yen Plummets as BOJ stays ultra-dovish.

The Bank of Japan has just reaffirmed its dovish stance at its policy meeting, and its commitment to cap 10-year JGB yields at 0.25%. Following on from a slight firming of US yields overnight, the Yen has plummeted in Asia as the US/Japan rate differential looks set to widen even more. USD/JPY has soared by 0.95% to 129.65 today, following a rise of 0.95% yesterday as well. ​ Resistance at 130.00 has held this morning, but a retest seems inevitable now as broad US Dollar strength continues. Support remains at 127.00 and 126.00 and although the technical picture is overbought, any dips by USD/JPY should find plenty of willing buyers.

Elsewhere, the US Dollar powered higher overnight as risk-aversion, the threat of more aggressive Fed hikes and ever-widening interest rate differentials kept the US Dollars momentum going. The dollar index jumped by 0.68% to 103.00 overnight, taking out the top of a multi-year triangle at 102.50. In Asia. Yen weakness has flowed through to EUR weakness and combined, has propelled the dollar index 0.43% higher to 104.33. A weekly close above 103.00 resistance this week will have me pondering making a call for the 120.00 region in the months ahead. In the short-term, support lies at 101.00 followed by 99.75.

EUR/USD tumbled once again overnight, taking out support at 1.0600 as the Russian gas export ban on Poland and Bulgaria provided yet another headwind to the single currency. EUR/USD fell 0.74% to 1.0560. In Asia, the sell-off continues as the Yen plummets. EUR/USD has fallen 0.45% to 1.0510. The FT story that European companies are preparing to pay Roubles for Russian gas has had no positive impact today. The failure of the multi-decade decade support line at 1.0800 is a significant development, as it the ease with which it fell through 1.0600 support overnight. Although a short-term relief rally is not out of the question thanks to the oversold short-term technical picture, EUR/USD remains on track to test 1.0300. The response of European officialdom to the alleged plan to pay for gas in Roubles will likely dictate if parity is tested in the weeks ahead.

GBP/USD has consolidated just above 1.2500 overnight, easing to 1.2510 in Asia. EUR/GBP selling and GBP/YEN buying is adding some support to the Sterling today but have not been enough to spark an overdue relief rally as the relative strength index (RSI) is now at extreme oversold levels. Any relief rally will be short term as the broader technical picture is now signalling further losses to 1.2200 and potentially sub-1.2000 in the weeks ahead. GBP/USD would need to reclaim 1.3050 to change the bearish outlook.

AUD/USD edged lower overnight but has slumped in the face of US Dollar strength this morning. AUD/USD has fallen 0.50% to 0.7100, taking out support at 0.7150. Unless global risk sentiment swiftly reverses, AUD/USD looks on course to test 0.7050 and 0.6950 by early next week. NZD/USD has slumped 0.70% to 0.6500 in Asia as business confidence data plummeted and imports soared. Resistance is at 0.6700 but the failure of support at 0.6525 today could signal a test of 0.6400 this week.

US Dollar strength has lifted onshore and offshore USD/Yuan higher today as covid lockdowns spread and mass testing in Beijing begins. USD/CNY has risen by 0.40% to 6.5900. Meanwhile, USD/CNH soared through 6.6000, jumping 0.70% to 6.6315. With the PBOC seemingly unconcerned about the pace of the Yuan retreat, economic clouds domestically, and an expectedly hawkish FOMC due next week, further Yuan weakness seems inevitable. That will likely spill over into regional currency weakness as well.

Asian currencies are weaker today as well, thanks to the sell-off in the Chinese Yuan, a much weaker yen, and general US strength ahead of an expected 0.50% hike by the Fed next week. The Won has once again been a proxy for Asia’s nerves, USD/KRW rising overnight and gaining another 0.40% to 1271.00 today. That has prompted warnings by the Finance Minister that the pace of the fall is too fast. I expect to see intervention by the Bank of Korea ramp up and they won’t be alone among the region’s central banks. The Malaysian Ringgit has been surprisingly resilient. USDMYR holding at 4.3600. Soaring palm oil prices, thanks to Indonesia, appear to be supporting MYR for now. In the bigger picture, slowing China growth and higher US interest rates mean more Asia FX weakness ahead.

Oil slides on Rouble buying plan.

Oil markets were steady overnight as most of the news around the Russian gas ban on Poland and Bulgaria has been priced into the late New York session previously. In Asia, oil prices are sliding which I put down to a combination of two things. The start of mass testing around Beijing and the partial lockdown of the port city Qinhuangdao, and the FT article suggesting that major European energy companies will comply with Russia’s demands for payment in Roubles. The collision course with the people who run Europe is being ignored for now.

Brent crude has fallen by 1.45% to $103.65 in Asia, with WTI falling by 1.50% to $100.50 a barrel. I have some doubts as to whether Europe’s politicians will allow its private energy companies to capitulate to the Kremlin. That may bring forward more weaponizing of gas supplies by Russia. In this case, any retreat in oil prices could be the eye of the hurricane.

Content to stay out of the schizophrenic day-to-day noise of oil’s price action, my bigger picture view is that Brent will remain in a choppy $100.00 to $120.00 range, with WTI in a $95.00 to $115.00 range.

Gold suffers from US Dollar strength.

The storm clouds are darkening for gold as it wilts in the face of US Dollar strength, not helped by US yields also moving higher overnight. It seems that any risk-hedging buying is nowhere near enough to offset the selling pressure derived from US Dollar strength.

Gold tumbled by 1.05% to $1885.50 overnight, falling another 0.40% in Asia today to $1877.50 an ounce. Gold is now eroding support at $1880.00 and is in danger of taking out its 100-day moving average (DMA), just below $1875.00 an ounce. The risk is rising of another capitulation trade pushing gold sharply lower to its original triangle breakout at $1835.00 and then support at $1820.00 an ounce.

Only a sudden reversal lower by the US Dollar is likely to lift the pressure on gold now. It faces layered resistance at $1880.00 intraday, followed by $1890.00, $1915.00, and $1940.00 an ounce.

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Markets

Asia Starts the Week Cautiously

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Asian equities

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

Recessionary concerns continue to hold back the buy-the-dippers in Asia today, with Asian stock markets completely ignoring the strong rally by US index futures this morning. It is always worth taking Monday morning price action with a grain of salt and regional markets are probably placing more emphasis on a flat close by Wall Street, especially given another day of intra-session histrionics which saw the 3.0% swings intraday.

Reaction to the Labour win in the weekend federal election in Australia has been muted. The new Prime Minister has already stated the obvious that the Australia/China relationship will remain challenging. Labour’s win had been expected and to a certain extent priced in anyway, the only variable is that after the 3 million postal votes have been counted, will Labour have an outright majority, or be forced into a coalition agreement with the independents, the big winners this weekend, or the greens. The Australian Dollar is higher this morning, but that is a US Dollar story, while stocks are unchanged.

China sparked a local equity rally on Friday after the 5-year loan prime rate was cut by 0.25%. That is supportive of the mortgage market and was a boon to an under-pressure housing sector. Unfortunately, some of that work was undone this morning when the PBOC set a surprisingly strong CNY fix. USD/CNY was fixed at 6.6756 versus market expectations at 6.6934. A stronger Yuan is weighing on Mainland equities today but has been supportive of Asian currencies generally. China continues to try and support growth by targeted stimulus while keeping the purse strings tight and attempting to deleverage swaths of the economy. Simultaneously, its maintenance of the covid zero policy has resulted in sweeping lockdowns across the country, including Shanghai and Beijing, increasing global supply chain disruption, and also torpedoing domestic economic activity. Little wonder that Chinese equities continue to play the cautious side, and so is the rest of Asia.

The economic calendar is light in Asia today. Most interesting will be Singapore Inflation this afternoon, and I can confirm, having been there last week, that the Red Dot is more expensive than ever. Inflation YoY in April is expected at 5.50%. A higher print than that will increase the chances of an unscheduled tightening by the MAS, supportive of the Singapore Dollar, but likely to be a negative for local equities.

Germany releases its IFO Business Climate for May this afternoon, expected to remain steady at 91.40 as the Ukraine conflict continues to crush confidence. More important is likely to be the May Services and Manufacturing PMIs from Germany, France, and the Eurozone tomorrow. For obvious reasons, there is plenty of downside risk in that data. The Euro has staged a semi-decent recovery over the last week, although I put that down to weaker US yields and rising hard-landing fears in the US, than Europe turning a corner. Ukraine-related risks only have upside for Europe and weak PMI data tomorrow should confirm the Euro recovery as a bear market rally.

The US releases Durable Goods, expected to be steady at 0.50% on Wednesday. Second estimate Q1 GDP on Thursday, and on Friday, Personal Income and Expenditure and the PCE index for April. The data should show the US is maintaining growth and that inflationary pressures are slowing, but not falling. To a certain extent, that is old news now, but I believe the real story will be in the US and the rest of the world, that inflation may be slowing, but it isn’t falling, and could just trade sideways at high levels for the rest of the year. Don’t put that stagflation definition back in the desk draw just yet. And I’ll say it again, stagflation does not provide fertile conditions for a stock market rally, so no, I don’t think the “worst is over.” The intraday tail-chasing histrionics of stock markets across the globe suggests they don’t either.

The Asia-Pacific has a frisky week ahead on the central bank front though. Both the Bank of Korea and Bank Indonesia, as well as my own national embarrassment, the Reserve Bank of New Zealand, all have policy decisions. The Bank of Korea should hike by another 0.25% this week, maintaining a steady course of rate hikes for the months ahead with inflation modest by Western standards. Bank Indonesia may also be tempted to follow the Philippines’ lead from last week and hike another 0.25%. However, BI has been a reluctant hiker and may wish to see if the palm oil export ban has eased food inflation. It could pause this month as it is still very much in a supporting the recovery mode.

The Reserve Bank of New Zealand is in a world of pain of its own making. Tomorrow’s Retail Sales have upside risks despite the soaring cost of living and will add to the pressure on RBNZ to get more aggressive in reeling in inflation. Anything less than 0.50% on Wednesday with guidance suggesting more 0.50% hikes ahead will see the New Zealand Dollar punished. Having continued maintaining zero per cent interest rates, and unforgivably, maintained QE, even as the economy surged spectacularly, the RBNZ is now in a monetary box canyon. Pain will be necessary to put inflation back in the box in New Zealand and it, and Sri Lanka, are at the top of the list for a hard landing this year.

In China, Shanghai restrictions are continuing to ease, although mass testing was ordered for one district today. Unfortunately, while China must get lucky 100% of the time, the virus only has to get lucky once. The inescapable fact other covid zero countries discovered. Thus, there is still a huge risk of Shanghai restrictions coming back. Beijing is taking a different approach to Shanghai but is in its own virus quagmire as well. That should hold back the optimism in Chinese equities and will be a drag on oil prices as well. Friday’s China Industrial Profits YTD in April data will retreat from March’s 8.50% surprise. Depending on who you talk to, it could be +2.0% to -5.50%, Either way, it has downside risks. With China tinkering with stimulus, deleveraging, and maintaining covid zero, don’t go bottom fishing just yet.

Asian equity markets are mixed

Asian equity markets are having a mixed session, mostly trading from the weaker side after a volatile session on Friday saw the gnomes of Wall Street finish the day almost unchanged, after unwinding some ugly intra-day losses. The S&P 500 finished 0.01% lower, the Nasdaq lost 0.30%, and the Dow Jones rose just 0.03%.

For some reason, US index futures are rallying impressively today, perhaps in a delayed reaction to the easing of long-dated yields on Friday, or just in another act of mindless following the leader we saw throughout last week. S&P 500 futures have rallied by 0.85%, Nasdaq futures have jumped by 1.05%, and Dow futures have climbed by 0.55%.

Asia, however, isn’t taking the bait, with most regional markets trading on the soft side after Beijing tightened virus restrictions in parts of the city, and Shanghai’s Jingan district closed shops and told residents to stay at home. Japan’s Nikkei 225, ever a slave to movements in the Nasdaq has posted a reluctant 0.63% gain today, but South Korea’s Kospi is unchanged, while Taipei has risen by 0.38%, with Bangkok climbing by 0.40%.

Otherwise, it is a sea of red. Mainland China’s Shanghai Compositae has fallen by 0.50%, with the CSI 300 slumping by 1.05%. Hong Kong’s Hang Seng has tumbled 1.90% lower, with Singapore down 0.50%, Kuala Lumpur is unchanged, Jakarta lower by 0.60%, and Manila down 0.40%. Australian markets have quickly unwound the post-election bounce this morning as well, the All Ordinaries now unchanged, while the ASX 200 has dipped into the red, edging 0.10% lower.

With no positive developments around the Ukraine situation over the weekend, and everyone important probably lowering their carbon footprint in Davos anyway, Asia’s negative price action should see European markets start the day weaker. A soft German IFO survey may darken the mood. US markets remain a complete turkey shoot of mind-bending sentiment intraday sentiment swings.

US Dollar eases in Asia after firm CNY fixing

The US Dollar posted modest gains on Friday, despite weaker US bond yields, ad traders reduced US Dollar shorts into the weekend. The dollar index rose 0.15% to 103.05. A firm CNY fixing by the PBOC seems to have been the catalyst for more US Dollar weakening today, along with a slow newsreel over the weekend. That has allowed risk sentiment to reassert itself modestly, pushing the dollar index 0.33% lower to 102.69 today. It seems US recession fears are weighing on sentiment ever more heavily for now, and the technical picture suggests the US Dollar correction has more to go. A close below support at 102.50 could see the dollar index test 101.00 before the reality of a hawkish Fed reasserts itself.

EUR/USD has risen by 0.35% to 1.0590 today, continuing its recovery from its 1.0350 lows last week. A test of 1.0650 and possibly even the 1.0800 37-year breakout line remain possible, but this is a weak US Dollar story and I believe that any rally above 1.0700 will be hard to sustain in the medium-term. In a similar vein, GBP/USD has traced out a low at 1.2155 last week and has risen 0.40% to 1.2545 in Asia. A test of 1.2650 is possible this week but like Europe, the United Kingdom’s structural headwinds leave the longer-term picture still bearish.

The fall in US long-dated yields on Friday has pushed USD/JPY down to 127.35 this morning. Given the weight of long USD/JPY positioning, failure of support at 127.00 could trigger a capitulation trade potentially targeting the 125.00 support area. At those levels though, given the trajectory of US and Japan interest rates, being short becomes a dangerous game.

AUD/USD and NZD/USD have resumed their recoveries after a quiet weekend news-wise green-lighted the sentimentalists to resume buying. AUD/USD has risen 0.60% to 0.7090, and NZD/USD has risen 0.70% to 0.6455. ​ Any rally above 0.7200 or 0.6500 will be challenging though as both currencies remain at the mercy of sudden negative swings in investor sentiment, especially from China. An RBNZ rate hike on Wednesday should allow the NZD to outperform AUD in the earlier part of the week. Beware a dovishly hawkish RBNZ statement on Wednesday though.

The PBOC has helped the recovery in risk sentiment rally by Asian currencies along today, setting the CNY at a much stronger than expected 6.6756. Most of USD/Asia is lower by around 0.25% today, although USD/MYR and USD/IDR are unchanged. It seems that USD/CNY above 6.8000 is a bridge too far now for the PBOC. But overall, they are probably more concerned about how fast it moved there, and not the overall direction of travel. In the short term, the PBOC’s actions will be supportive of Asian currencies in general. USD/INR and USD/KRW have put in decent tops at 77.80 and 1290.00 respectively. If US yields resume their move higher, I expect Asian currency weakness to reassert itself, although with regional central banks starting to hike now, we should see a slow grind, and not an abrupt sell-off.

A quiet day for oil markets

Oil prices edged higher on Friday in New York, as the persistent squeeze in refined petroleum products in the US, and ever-present Ukraine/Russia risk underpinned prices, with China slowdown and US recession noise limiting gains. Mind you, in one article I read this morning, China’s recovery hopes were supporting oil while China’s slowdown hopes were capping gains. I guess it’s not just equity markets that are very confused right now. I do note, though, that the Brent crude premium over WTI reasserted itself into the end of the week, so perhaps the worst of the US diesel and gasoline squeeze is passed for now.

Brent crude rose by 1.10% to $112.55 on Friday, gaining another 0.70% to $113.30 a barrel in Asian trading. WTI rose 0.40% to $110.55 on Friday, gaining another 0.35% to $110.90 a barrel today. The price action is consistent with a market that is not strongly leaning one way or another at the moment.

Brent crude has resistance at $116.00 and support at $111.50 a barrel. WTI has resistance at $113.00 and $116.00 a barrel, with support at $108.00. Overall, I am expecting Brent crude to bounce around in a $111.00 to$117.00 range this week.

Gold rises on weaker US Dollar

Gold prices rose on Friday, climbing just 0.24% to $1844.00 an ounce. In Asia, they have gained 0.42% to $1854.00 an ounce. Although gold’s rally has been impressive over the past week, it has yet to be proven that it is not just the result of a weaker US Dollar. The true test of its resolve will be its ability to maintain gains when the US Dollar starts rising again.

Nevertheless, the technical picture is swinging back to a further test of the upside with resistance at $1860.00 and then $1885.00 an ounce, its 100-day moving average. Support is at $1845.00 and $1840.00, followed by $1832.00 an ounce.

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Energy

Nigeria, Ghana, Others Need $60bn For Energy In 8 Years – Sylva

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green energy - Investors King

The Federal Government of Nigeria has estimated that Sub-Saharan Africa would need about $60 billion in order to have electricity, energy supply and clean processing of food between now and 2030.

Minister of State for Petroleum Resources, Timipre Sylva disclosed this at the annual Symposium and Exhibition of the Petroleum Engineers (LPE) in Lagos.

He noted that an annual investment of around $35 billion could bring electricity access to 759 million Africans who currently lack it.

He added that another $25 billion a year could help 2.6 billion people globally to access clean cooking by 2030.

“Annual investments of around $35 billion could bring electricity access for 759 million people who currently lack it, and $25 billion a year can help 2.6 billion people gain access to clean cooking between now and 2030,” he said.

The need for developing African petroleum value chains has been at the forefront of African development. Investors King had earlier reported that oil will play a significant role in the African energy mix and will take the highest share over all forms in the future mix.

However, Sylva noted that with the demand of over 600 million without access to electricity, Africa must do this in a modern way.

”We must not solve one problem while creating another. Africa needs to also take care of the environment.

“We must have a clear mandate and one voice on how we are going to meet our emissions targets. China has said that by 2060, it will achieve carbon neutrality. Europe has set its target for 2025. Africa needs to do this, as well.”

Sylva also emphasized that the required expenditure is a minor part of the larger multi-trillion-dollar global energy investment required.

Despite providing below 6% of global energy use and 2% of total global emissions, Sylva believes that the continent must transition to sustainable energy use.

Africa, Sylva believes, has the potential to take a prominent role in this regard because of its vast undiscovered fossil energy deposits, which may offer more even foreign direct investment and export money.

However, the minister emphasized that Nigeria possesses the most extensive natural resources in Africa, with around 208.62 trillion cubic feet (TCF) of known gas valued at over $803.9 trillion and a potential upside of 600TCF of gas.

Sylva described the Petroleum Industry Act (PIA) as a game-changer that will assist Africa in eradicating energy crises.

“The PIA has generous incentives to enable development, distribution, penetration, and utilization of gas even as it incentivizes entry into the midstream, especially for pipelines with an additional five-year tax holiday for investment in gas pipelines.

“The PIA is a supply-side enabler, capable of provoking and triggering commercial interests and investments in gas utilization as well as treating gas as a stand-alone commodity.

“As a nation, we are following a transition pathway that combines technology, investment, business strategies, and government policy that will enable Nigeria to transition from its current energy system to a low-carbon energy system with natural gas playing a pivotal role over the next generation, roughly between now and 2060,” he added.

The minister insisted that there must be multiple pathways to the energy transition in order to ensure that no country is left behind in the process of achieving net zero by 2060.

“As a continent, we need to be intentional and recognize the need to develop hydrocarbon resources in environmentally and socially responsible ways.

“And as alluded to by the African Union, we need to be realistic in choosing the energy transition pathways which address our unique requirements and circumstances,” Sylva said.

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Markets

Another Turbulent Day

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capital market - Investors King

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

It’s been another turbulent session after stock markets turned sharply lower on Wednesday as investors fret over the outlook for the economy this year.

Results from Walmart and Target this week have brought into sharp focus the plight facing companies and consumers as inflation begins to bite. And that’s in a country that is still performing relatively strongly with a consumer that still has plenty of savings built up over the last couple of years. Others are not in such a fortunate position.

But inflation is catching up and profit margins are taking a hit. Soon enough though, those higher costs will continue to be passed on and consumers will stop dipping into savings and start being more careful with their spending. There’s a feeling of inevitability about the economy, the question is whether we’re going to see a slowdown or a recession.

The language we’re seeing from Fed officials isn’t filling me with confidence either. We’ve gone from them being confident of a soft landing, to a softish landing and even a safe landing, as per Patrick Harker’s comments on Wednesday. I’m not sure who exactly will be comforted by this, especially given the Fed’s recent record on inflation and past record on soft landings.

And it seems investors aren’t buying it either. A combination of these factors and no doubt more has sent equity markets into another tailspin, with Wall Street registering another big day of losses on Wednesday and poised for another day in the red today. Europe, meanwhile, is also seeing substantial losses between 1% and 2%.

Oil slips as economic concerns weigh

Those economic concerns are filtering through to the oil market which is seeing the third day of losses, down a little more than 1% today. We were bound to see some form of demand destruction if households continued to be squeezed from every angle and it seems we may be seeing that expectation weigh a little as we move into the end of the week.

Meanwhile, China is reportedly looking to take advantage of discounted Russian crude to top up its reserves in a move that somewhat undermines Western sanctions. Although frankly, it would have been more surprising if they and others not involved in them didn’t explore such a move at a time of soaring oil prices.

Still, I expect Brent and WTI will remain very high for the foreseeable future, boosted by the inability of OPEC+ to deliver on its targets and the Chinese reopening.

Gold buoyed by recession fears?

Gold appears to be finally seeing some safe-haven flows as markets react strongly to the threat of recession rather than just higher interest rate expectations. The latter has driven yields higher and made the dollar more attractive while the economic woes they contribute to seem more suited to gold inflows, it seems.

It will be interesting to see how markets react in the coming weeks if the investor mindset has turned from fear of higher rates to the expectation of a significant slowdown or recession. And what that would mean for interest rate expectations going forward. Perhaps we could see gold demand return.

Can bitcoin continue to swim against the tide?

Bitcoin is holding up surprisingly well against the backdrop of such pessimism in the markets. Perhaps because it’s fueled by economic concern rather than simply interest rates. Either way, it’s still trading below $30,000 but crucially it’s not currently in freefall as we’re seeing with the Nasdaq. Whether it can continue to swim against the sentiment tide, time will tell.

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