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The Stranger Things Put

The bear market rally looks well and truly back on track this week, thanks to one of the stranger things I have seen in 2022, Netflix losing only one million subscribers in Q2 instead of 2 million and forecasting an additional one million subscriber additions in Q3

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

The bear market rally looks well and truly back on track this week, thanks to one of the stranger things I have seen in 2022, Netflix losing only one million subscribers in Q2 instead of 2 million and forecasting an additional one million subscriber additions in Q3. Minus one plus one equals um, zero, the last time I looked. But it is not for me the second guess the bullish herd mentality of the equity market, especially as they continue to grapple with the reality that 20-years of central bank monetary puts have come to an end.

The Netflix results were apparently backstopped by Stranger Things 3 being released. I’ll not argue with that as I love Stranger Things and remember the 80’s and all the music very well. Mrs Halley is less enamoured with season 3, complaining about the slow pace and the convoluted plot threads. That’s what makes a market I suppose. I have a feeling that omicrons’ rampage across the world, has left many subscribers working or isolating from home, delaying the pressing of the cancel subscription button.

Either way, with the street hungry for good news to feed the buy-the-dip appetite, Wall Street has a huge day, which saw investors piling back into big tech as well, lifting the Nasdaq by over 3.0%. I heard more peak inflation noise being bandied around, with Reuters reporting that Nord Stream 1 natural gas flows from Russia to Germany would resume this week as scheduled. Additionally, hopes were raised around negotiations to ease Russia’s seaborne blockade of Ukrainian food exports.

Peak inflation is as good a reason to pile into equities and other risk sentiment asset classes as any I suppose. I personally believe we could be near peak inflation, but any hopes that it is suddenly going to fall quickly are naïve, far more likely is that it stays elevated for quite some time to come. The other issue I have from the above paragraph is having to use the words “hope” and “Russia.” I’m not sure how many times investors have to be slapped around the face on this point.

To emphasise this, lets circle back to the Reuters natural gas story. It did mention that its sources said the flows, when they resume this week, will not return previous levels, and by this, I mean its 160 million cubic metre-per-day capacity. Vladimir Putin, on his return from fellow economic powerhouse, Iran, is already setting the scene for reduced flows resuming, blaming faulty pumping units again according to Reuters. They also reported that Mr Putin said in Iran that “not all issues had been resolved yet” vis-à-vis Black Sea grain exports.

So, Joe Biden left Saudi Arabia empty-handed on commitments by the Saudis to pump more oil, and Vladimir Putin is saying Nord Stream 1 gas flows will remain low and that Black Sea grain shipments have “issues” to overcome. And markets are pricing in peak inflation with a precipitous drop in H2 2022. I do admire the optimism. In large directional macro moves of the type we have seen in equities and currency markets the past few months; it is not unusual to see quite aggressive short-term reversals of those trends. I am yet to be convinced that we are seeing anything more than a bear market rally at the moment. Europe’s day of reckoning may come earlier when Nord Stream 1 is due to be switched on tomorrow. For the rest of world, that may come at next weeks FOMC policy meeting.

Over in China, the mortgage payment strike by disgruntled apartment buyers is grabbing the headlines. The government is seemingly moving to push the funding gap to beleaguered developers onto local governments and state policy banks, meaning the fallout so far has been limited on equity markets. Perhaps more concerning is new Covid-19 cases reached 1,012 in China yesterday, according to official data. A flesh wound anywhere else, but in China’s covid-zero world, a cause for concern around potential new lockdowns. Readers should monitor developments here closely. Covid-zero means covid-zero in China, not lock down Shanghai and Beijing once and done. Mainland equities have only rallied modestly today, and your answer probably lies there. In other news China left its one and five-year Loan Prime Rates unchanged, but this was completely expected.

There is no other data of note due out in Asia today, the Reserve Bank of Australia Governor Lowe spoke earlier today. Mr Lowe said he expected CPI to keep heading higher, and that employment was past its theoretical maximum, and that interest rates would have to keep going up. Mostly, t was of no surprise to markets now, and the Australian Dollar and local equities are ignoring it to hitch their reins to the US peak-inflation, we can trust Russia, less-worse earnings, sentiment rally overnight, like everyone else.

This afternoon, German PPI is expected to rise to an eye-watering 33.90% YoY for June, as hints of a 0.50% rate hike by the ECB tomorrow gave the Euro a boost overnight. The United Kingdom releases inflation for June, expected to climb to 9.30% YoY, with Core Inflation at 5.80%, PPI rising to 23.20% and Retail Prices rising 11.80%. With UK employment data yesterday surprisingly strong, some serious pressure is going to fall on the Bank of England now to accelerate rate hikes least material Sterling weakness return.

US Housing Starts for June edged slightly lower overnight, and tonight we receive Existing Home Sales, which are expected to fall slightly to 5.38 million. In this environment, a bigger fall as rate hikes bite, is likely to be interpreted as peak inflation/ less Fed rate hikes equals buy equites and sell US Dollars. Counterintuitive I know, but I don’t make the story up, I just report it and try to make sense of it.

Asian equities follow Wall Street higher.

Asian equity markets are enjoying a very positive session today, content to coattail the impressive rally by Wall Street overnight. Overnight, US stocks booked impressive gains after Netflix had less worse results than expected, and peak inflation hopes abounded on expectations of resumed Black Sea grain exports and Russian gas exports to Europe. All-in all, it looked like Wall Street was looking for any excuse to continue the bear-market rally, and they got it.

Overnight, the S&P 500 jumped an impressive 2.73% higher, while the Nasdaq rallied by 3.09% as the Netflix results inspired investors to pile back into big tech en masse. Not to be outdone, the Dow Jones also booked a health 2.39% gain. In Asia, the party continues for US futures. S&P 500 futures are 0.53% higher, Nasdaq futures are rallied by 0.72%, and Dow futures have added 0.41%.

In Asia, Japan’s Nikkei 225 has jumped 2.40% higher, with South Korea’s Kospi climbing by 1.05%, and Taipei is also 1.05% higher. The rally is less impressive in Mainland China thanks to rising covid-19 cases. The Shanghai Composite is 0.67% higher, the CSI 300 has added just 0.38%, but Hong Kong’s Hang Seng has rallied 1.80% higher.

In regional markets, Singapore is 1.33% higher, with Kuala Lumper gaining 0.55%. Jakarta has rallied by 1.80%. Manila and Bangkok have added 0.40%. Australian markets are having a strong day on the back of the US equity rally. The ASX 200 is 1.50% higher, while the All Ordinaries has rallied by 1.65%.

European markets booked another outsized session of gains overnight, following Wall Street and hitching their wagon on hopes that Putin would return Nord Stream 1 flows to normal from tomorrow. I admire their optimism, but Mr Putin appeared to pour cold water on that this morning, and I suspect it will eventually pour cold water on European equity markets dalliance with the world of fantasy today.

US Dollar correction continues.

With risk sentiment soaring in US equity markets overnight, the US Dollar bull market correction continued unabated, with losses versus the DM and EM space overnight. The dollar index closed 0.68% lower at 106.68 overnight, easing another 0.15% to 106.53 in Asia. but traded in a very choppy 115 point range between 106.90 and 108.05. The index traced out a double bottom at 106.40 overnight, and this marks initial support. Failure allows a test of 105.85 and then 105.00. Above, resistance is at 107.60, the overnight high, and then 108.70. A neutral relative strength index allows the US Dollar correction to continue for some time yet.

EUR/USD rallied through 1.0200 yesterday, finishing 0.80% higher at 1.0225. Asia is has edged higher to 1.0245. ​ The technical picture still suggests only a sustained break above 1.0360 would suggest a longer-term low is in place. EUR/USD has support at 1.0120 and 1.0000. The single currency faces serious event risk in the latter half of the week, firstly from the ECB policy decision, and secondly, from Russian natural gas flows which are due to resume after pipeline maintenance.

USD/JPY is holding steady at 138.00, where it remains in Asia. 139.40 is initial resistance, followed by 140.00. Support is at 137.40 and 136.00. The former was tested again overnight, and failure now signals a much deeper correction lower.

AUD/USD and NZD/USD rallied strongly overnight, breaking higher out of their falling wedge formations, implying more gains are likely in the near term. Having broken higher through 0.6850, AUD/USD is trading at 0.6920 today and the technical picture suggest a move through 0.7000 is likely. Similarly, the rise through 0.6150 by NZD/USD suggests that further gains above 0.6300 are possible.

Oil prices explode higher.

Brent crude and WTI prices continued higher overnight as sentiment in markets swung to peak inflation once again, and concerns persisted around the resumption of Russian gas supplies. Brent crude rose 1.50% to $107.25 overnight, before edging lower to $106.40 in Asia. WTI rose by 1.50% to 103.35 a barrel overnight, moving 0.70% lower to $102.65 a barrel in Asia. ​

Brent crude has nearby resistance at $107.25, followed by $108.00 a barrel. Support is at $103.65 and $99.50. WTI has support at $99.35 and $96.00 a barrel, with resistance nearby at $104.00 and $105.00 a barrel.

Gold’s remains unimpressive.

Gold has another unimpressive session overnight, failing ahead of $1720.00 intraday, but closing almost unchanged at $1711.00 an ounce, before edging lower to $1709.00 in Asia.

Gold’s inability to hold onto even modest rallies in prices, even as the US Dollar falls and US bonds trade sideways, is a major concern. Risk remains heavily skewed towards the downside.

Gold has initial support at $1700.00, followed by the more important $1675.00 an ounce zone. A sustained failure of $1675.00 will signal a much deeper move lower targeting the $1450.00 to $1500.00 an ounce regions in the weeks ahead. Gold has resistance nearby at $1725.00, and then $1745.00.

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.

Energy

Presidency Set to Roll Out 2,700 CNG-Powered Vehicles Ahead of Tinubu’s Anniversary

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BOC Gases Nigeria Plc - Investors King

In a significant move toward a greener and more sustainable future for Nigeria’s transportation sector, the Presidency has announced plans to launch approximately 2,700 Compressed Natural Gas (CNG)-powered buses and tricycles before May 29, President Bola Tinubu’s first year in office.

The ambitious initiative, spearheaded by the Special Adviser to the President on Information and Strategy, Mr. Bayo Onanuga, aims to address pressing issues of rising fuel costs, environmental pollution, and the need for more efficient mass transit options across the country.

With the impending rollout, Nigeria is poised to take significant strides towards joining the league of nations that have embraced CNG as a viable alternative fuel source for public transportation.

The move comes as part of the Presidential CNG Initiative, launched by President Tinubu in October 2023, shortly after the removal of petrol subsidy.

The Presidential CNG Initiative, designed to deliver cheaper, safer, and more climate-friendly energy options, has been allocated a substantial budget of N100 billion from the palliative budget.

This funding will support the purchase of 5,500 CNG vehicles, including buses and tricycles, along with 100 electric buses and over 20,000 CNG conversion kits.

Also, the initiative encompasses the development of CNG refilling stations and electric charging stations nationwide, ensuring that the infrastructure is in place to support the transition to cleaner energy sources.

Mr. Onanuga emphasized that all necessary preparations have been made for the delivery of the first set of critical assets for deployment and launch of the CNG initiative ahead of the first anniversary of the Tinubu administration.

Approximately 2,500 tricycles are expected to be ready before May 29, 2024, with plans to deliver 200 units of buses within the same timeframe.

The deployment of CNG buses and tricycles marks a significant milestone in Nigeria’s energy transition journey.

It not only reduces the country’s dependence on traditional fossil fuels but also contributes to mitigating environmental pollution and improving air quality in urban centers.

In addition to the rollout of CNG vehicles, the initiative includes partnerships with the private sector to establish conversion workshops and refueling sites across 18 states before the end of 2024.

These efforts underscore the collaborative approach taken by the government and industry stakeholders to facilitate the adoption of CNG technology and drive sustainable growth in the transportation sector.

As Nigeria prepares to celebrate President Tinubu’s first year in office, the rollout of 2,700 CNG-powered vehicles stands as a testament to the government’s commitment to fostering innovation, promoting environmental stewardship, and improving the lives of its citizens through transformative initiatives in the energy sector.

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Commodities

IPMAN Anticipates Further Drop in Diesel Price to N700/Litre

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The Independent Petroleum Marketers Association of Nigeria (IPMAN) is looking forward to another significant drop in the price of diesel, with expectations set on a target of N700 per litre.

This anticipation follows recent reductions initiated by the Dangote refinery, which has already seen the price of diesel decrease from over N1,200 to N1,000 per litre.

Hammed Fashola, the National Vice President of IPMAN, expressed this optimism on Wednesday, highlighting the association’s appreciation for the efforts made by the Dangote refinery to make diesel more affordable for consumers.

In an interview, Fashola reiterated IPMAN’s belief that the price of diesel could continue to decrease, especially with the recent rebound of the naira against the dollar.

Fashola stated the removal of various challenges associated with imported diesel, such as shipment costs, customs duties, and taxes, as significant factors contributing to the potential reduction in price.

With diesel now being produced locally, these obstacles have been eliminated, paving the way for lower costs for consumers.

“We still expect that diesel will still come down more. Because if you look at the dollar rate to the naira now, the currency is doing well against the dollar. The exchange rate now is almost N1,000 on the black market. We still expect that the dollar will come down more,” Fashola stated.

The IPMAN boss highlighted the collective support for Dangote and emphasized the importance of making diesel affordable for all citizens. He expressed gratitude for the recent price cuts initiated by the refinery and reiterated the association’s hopes for further reductions to benefit consumers across Nigeria.

Dangote Refinery, which began selling diesel about two weeks ago, has been instrumental in driving down prices. Initially, diesel was priced at N1,600 per litre, but it has since been reduced to N1,000 per litre.

This reduction has been welcomed by both consumers and industry experts, who see it as a positive step towards economic relief and increased economic activities.

Analysts have also weighed in on the potential benefits of lower diesel prices. Economist Femi Oladele highlighted the potential for reduced production costs, which could lead to lower prices for goods and services.

Also, savings in foreign exchange could bolster the nation’s reserves, contributing to economic stability.

Jonathan Thomas, an analyst at Sankore Investment Limited, emphasized the broader impact of fuel prices on the economy.

Lower diesel prices not only benefit consumers but also impact the total cost of production, thereby influencing the general price level of goods and services.

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Crude Oil

Oil Markets Hold Breath as Iran-Israel Tensions Mount

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Crude Oil - Investors King

Amidst escalating tensions between Iran and Israel, the global oil markets find itself in a precarious position, with traders and investors anxiously watching for potential ramifications on prices and supply dynamics.

The latest developments have cast a shadow of uncertainty over the already volatile energy sector, prompting a flurry of activity and speculation among industry players.

Last week marked a downturn for oil as Brent crude experienced its first back-to-back weekly decline of the year, slipping below $87 a barrel. This decline, coupled with the largest drop since early February, reflects the unease permeating through the market as geopolitical tensions in the Middle East reach a fever pitch.

The catalyst for this downturn stems from a series of events that unfolded in the region.

Iran’s unprecedented drone and missile strike on Israel sent shockwaves through the international community, triggering a swift response from Israeli authorities.

However, conflicting reports emerged regarding the severity of Israel’s retaliation, leaving traders grappling with uncertainty over the potential escalation of hostilities.

In response to the heightened tensions, the US House of Representatives passed new sanctions targeting Iran’s oil sector, signaling a firm stance against the Islamic Republic’s aggressive actions.

With the measure now poised for Senate approval, the specter of further economic pressure on Iran looms large, raising concerns about potential disruptions to global oil supplies.

Warren Patterson, head of commodities strategy for ING Groep NV, who commented on the surprising resilience of oil prices in the face of heightened risk and tension in the Middle East, noted that while the market remains vigilant, it appears unfazed by the current geopolitical climate, choosing instead to adopt a wait-and-see approach regarding the impact of US sanctions on Iranian oil flows.

Despite the prevailing sense of uncertainty, there are signs of bullish sentiment among money managers, who are increasingly positioning themselves to capitalize on any potential spikes in oil prices.

Oil call options, which profit from price increases, are trading at a premium over puts, indicating a belief among investors that the market could tilt in favor of higher prices amidst geopolitical turmoil.

Looking ahead, the focus shifts to a flurry of upcoming events that could further shape the trajectory of oil markets.

Investors eagerly await a slew of economic data from the United States, including key indicators such as the Federal Reserve’s preferred measure of inflation, which will provide valuable insights into the future path of monetary policy.

Additionally, earnings reports from major oil companies, including TotalEnergies SE, Chevron Corp., and Exxon Mobil Corp., are set to be released this week.

These reports will offer a glimpse into the financial health of the industry giants and shed light on their production growth strategies amid a backdrop of geopolitical instability.

As tensions continue to simmer in the Middle East, the oil markets remain on edge, with every development closely scrutinized for its potential impact on prices and global energy security.

In this climate of uncertainty, traders and investors alike brace themselves for the next twist in this geopolitical saga, mindful of the far-reaching implications for the world’s most vital commodity.

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