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Sentiment Slips in Europe

Stock markets in Europe turned lower again on Wednesday while US futures are more mixed, similar to what we saw in Asia overnight.

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Global Sell off - Investors King

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

Stock markets in Europe turned lower again on Wednesday while US futures are more mixed, similar to what we saw in Asia overnight. Conditions remain choppy in the aftermath of Jackson Hole last week.

There’s clearly a lack of conviction in the markets following a lot of hawkish central bank commentary in recent days. The narrative that investors want to believe is that inflation has peaked and is falling in the US and that a soft landing is plausible. That doesn’t necessarily align with what we’re hearing.

Add to that the increasingly hawkish language from other central banks amid severe economic headwinds and the reality of the situation is seemingly becoming impossible to ignore. With 75 basis point hikes now on the table for the US, EU and UK next month, among others, it may not be entirely surprising that investors are taking a more cautious stance.

ECB paying the price for dragging its feet amid record inflation

The inflation data from the eurozone this morning won’t have hurt the odds of a 75 basis point hike, that’s for sure. Inflation in the bloc rose 9.1% in August, up from the previous record of 8.9% in July. With core inflation also jumping to 4.3% from 4%, the pressure is seriously mounting on the ECB to be more aggressive. The central bank is paying the price for its decision to leave the deposit rate at -0.5% for as long as it did and may have to be much more forceful now as a result. Price pressures are becoming more widespread, with energy increases easing slightly but food, alcohol and tobacco inflation accelerating to 10.6%. The inflation situation is, unfortunately, going to get worse, perhaps much worse, before it gets better considering what’s to come with energy this winter.

Gas flows halted, nervy few days ahead

Gas flows through Nord Stream one have now paused for the three-day maintenance period. While Europe is keen to stress its storage levels are well ahead of schedule, the failure of flows resuming on Saturday would be a massive blow ahead of what is already going to be a nervy and expensive winter. European gas prices are near their recent highs and will likely remain so over the coming days until flows resume. If they don’t, prices could rise much further.

Oil edges lower but Saudi comments are still supportive

Oil prices are a little lower again for a second day after spiking earlier in the week. It’s a little indicative of the mood in the rest of the markets at the moment and the lack of certainty. Prices jumped earlier in the week as traders weighed up the potential for supply disruptions from Libya and Iraq, while the threats of production cuts from Saudi Arabia continued to echo.

They’ve since pulled back amid reports that an OPEC+ cut is not under consideration next week and as broader risk markets turned south. Economic concerns remain and may ensure trade continues to be volatile. API also reported a small inventory build on Tuesday, while a small draw is expected from EIA later today. Given previous comments from Saudi Arabia, any significant pullback from $100 may be challenging.

Gold is on the decline once more

Gold is slipping again on Wednesday, this time aided by the dollar which is rallying once more. Traders are becoming increasingly convinced that the Fed will hike rates by 75 basis points next month, despite the improvement in the inflation data. The message is finally getting through from the Fed and barring another significant improvement in August and/or any sign of slack appearing in the labour market, it may now have to deliver.

It’s worked so hard to convince traders that it must continue tightening aggressively that to then only do so by 50 basis points would seriously undermine trust in its communication and guidance. Policymakers have backed themselves into a corner and may now have to deliver. With $1,730 now broken, attention shifts back to $1,700 and $1,680.

Can bitcoin hold out much longer?

Risk assets are struggling in the aftermath of Powell’s speech at Jackson Hole, the only exception arguably being bitcoin which fell heavily in the immediate aftermath but has now found its feet. In fact, it’s posting gains of more than 1% today, bucking the trend we’re seeing elsewhere, with risk assets generally underperforming. Once more we’re seeing resilience in bitcoin around $20,000; the question is how long can it hold out if sentiment doesn’t improve?

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Energy

FG to Add Additional 817 MWs to The National Grid to Boost Power Supply

The federal government has revealed plans to add an additional 817 megawatts (MWs) of electricity to the national grid to boost power supply within the federal capital territory (FCT) and its environs.

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The federal government has revealed plans to add an additional 817 megawatts (MWs) of electricity to the national grid to boost power supply within the federal capital territory (FCT) and its environs.

This was disclosed by the Managing Director of Transmission Company of Nigeria (TCN) Mr. Sule Abdulaziz while on a visit to the ongoing projects in the Federal Capital Territory (FCT).

He added that when the project is completed, it would add 1. 465 more transmission lines to the grid, improving and strengthening the FCT’s access to electricity.

In his words, “With the additional lines, TCN capacity of transmission lines will be higher than what is in existence and this means that in future, we can build some sub-stations without upgrading the lines”.

“This is part of efforts to increase transmission wheeling capacity in the FCT and environs. The project is categorized into six lots and is far advanced in execution above 85 percent in total completion by December.

“This will be adequate and it will serve the population of Abuja. The government while making plans for the project has in mind that if the population of FCT increases within five to 10 years, there is a master plan that the station will serve the territory in the next 50 years.

“Construction of complete new 2x60MVA, 132/33 KV substation with 132KV line Bays at Wumba/Lokogoma including about 5km 132 underground XLPE Cable from New Apo Sub Station are ongoing.

“Others are the construction of a 2x150MVA 330/132/33KV substation at New Apo where the managing director frowns at the slow pace of work done by the contractor”.

He also lamented on the recent abysmal supply of electricity, noting that the contracts for all the substations were signed at the same time and wondered why the slow pace of work.

“We have spent a lot of money to clear their containers which entered demurrage and this money is not part of AFD grant but TCN Internally Generated Revenue which could have been used for other projects. We are going to push them to finish the project on time,‘’ he said.

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Energy

Here is Why Otedola is Listing N250 Billion Geregu Power Plant

Otedola listed Geregu to raise additional cash for expansion in the Nigerian energy sector

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Wondering why billionaire Femi Otedola listed Geregu Power? Here is a concise breakdown of what might have compelled the billionaire to run to the capital market after nine years of acquiring the Geregu Power plant via Amperion Power, a company he owns a 99.9% stake in.

In 2013, the year the billionaire first invested in the energy sector. Otedola dumped a total sum of $94 million on Geregu Power through Amperion.

In 2018, Otedola invested an additional $350 million in the sector, saying it was a sign of his commitment to the Federal Government’s plans of addressing the age-long challenges impeding the electrification of the nation.

The huge investment was the billionaire hint of what is to come as shortly after he announced the sale of Forte Oil to Abdulwasiu Sowami, the present owner of Forte. Otedola sold all his 75% stake in Forte Oil in 2019 and immediately announced a shift in his investment direction.

Earlier this year, Amperion Energy was selected by Federal Government to bid for the sales of Geregu II after reporting a reasonable success with Geregu Power in 2021 when the company declared a profit after tax of over N20 billion.

Otedola, who just invested a substantial amount in FBN Holdings Plc, needs to source for funds if he must expand his grip in the energy industry. The billionaire quickly divested N8 billion from his over 7% stake in FBN Holdings and went on to list the Geregu Power plant on the Nigerian Exchange Limited (NGX) at N250 billion to raise an additional fund for Geregu II bidding.

Geregu II Generation Company was put up for sale by the Federal Government amongst other power plants like Benin Generation Company Limited, Omotosho Generation Company Limited, Calabar Generation Company Limited, and Olorunsogo Generation Company Limited for acquisition in July 2022.

The Geregu II Generation Company has a capacity of 434MW. Therefore, by acquiring Geregu II Otedola’s total power-generating capacity would increase to 848MW given Geregu current capacity of 414MW.

Geregu Power Plc was incorporated in November 2006 as one of the unbundled companies from the non-existing Power Holding Company of Nigeria (PHCN).

The power plant began operations in 2007 with a total installed capacity of 414MW at commissioning. Therefore, given the seemingly unplanned method, in which Otedola jumped on FBN Holdings shares following the exit of Otudeko, the billionaire will need extra cash to expand his market share in the energy space. This listing explained how he plans to access or he is accessing that extra cash.

Calvados Global Services Limited, Otedola’s investment company used in acquiring most of his stake in FBN Holdings, owns 95% of Amperion Energy.

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Markets

Relief Rally Already Struggling

Equity markets have erased early gains to trade in the red on Thursday, as investors take a cautious approach ahead of Friday’s jobs report.

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New York Stock Exchange

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

Equity markets have erased early gains to trade in the red on Thursday, as investors take a cautious approach ahead of Friday’s jobs report.

The narrative in recent days of weaker data being positive as it could be a precursor to slower tightening didn’t seem sustainable and it’s already proving to be the case. I think it was more a reflection of the steep sell-off in the markets and the performance of risk assets in general over the six weeks previous, rather than the data. If the Fed wasn’t prepared to jump at the first sign of inflation easing, it certainly won’t on the back of a weaker PMI and decline in job openings.

The recovery did provide some temporary relief and while weaker data is likely to precede a deceleration in rate hikes, I don’t think we’re there yet. Yesterday’s services PMI – which is far more important – was still strong, as was the ADP number and tomorrow’s jobs report is expected to remain hot.

That may put an end to the narrative for now, although any weakness in the labour market data tomorrow, or signs of additional slack, could boost the relief rally once more and see equity markets end the week strong. As I say, it’s all clutching at straws at this point but after weeks of heavy losses, perhaps that’s not overly surprising.

UK facing major headwinds

The UK economy appeared to get some good news from the Construction PMI this morning, which easily beat expectations rising to 52.3 rather than dropping to 48.1 from 49.2. So rather than contracting at a faster rate, the industry posted strong growth in the survey. Unfortunately, the headline number simply doesn’t tell the full story. The improvement was driven by delayed projects and easing supply shortages, while new orders showed the weakest growth since May 2020. That’s a more accurate reflection of the state of play in the UK right now.

As was captured overnight by Fitch downgrading the outlook from stable to negative in light of the mini-budget. The overall rating remained at AA- but that may change once the details of how everything will be paid for are released in the budget. Sterling is down for a second day after recovering over the last week, off around 0.6% against the dollar.

OPEC+ boosts oil prices after large cut

Oil prices are edging lower today after OPEC+ announced a huge production cut on Wednesday of two million barrels per day. With the group failing to hit output targets by a widening margin as the year has progressed, the net cut will be around half that, if not less, but that’s still a substantial reduction in an already tight market.

Of course, the global economy is slowing as a result of an inflation and interest rate shock – which soaring oil prices and underproduction is partially responsible for – and that should weigh on demand over the next year offering some balance. But that is highly uncertain so it’s understandable that the backlash has started as higher oil prices will only compound inflation and cost-of-living issues in the interim.

Gold relief rally over?

Gold is paring gains again today after a strong relief rally earlier in the week. The yellow metal was buoyed by a softening dollar and lower yields but both are bouncing back. It was always likely to face strong resistance above as the rally was driven more by hope than substance. A weaker jobs report tomorrow could give it another boost but even that may prove to not be sustainable.

Choppy ahead of the jobs report

Bitcoin continues to be choppy around $20,000, with trade in the middle of the week having lost the momentum it started with. Traders appear to have one eye on the jobs report now in the hope it’s bad enough to trigger another risk rally. Given the strength of the labour market until now, they may be disappointed once more.

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