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A Busy End to the Week

Stock markets are bouncing back on Friday, although I don’t think anyone is getting excited by the moves which pale in comparison to the losses that preceded them.

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Traders Wall Street

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

Stock markets are bouncing back on Friday, although I don’t think anyone is getting excited by the moves which pale in comparison to the losses that preceded them.

This looks like nothing more than a dead cat bounce after a steep decline over the last couple of weeks as investors have been forced to once again accept that interest rates are going to rise further and faster than hoped.

Double-digit eurozone inflation

Inflation in the eurozone hit 10% in September ahead of schedule, with markets expecting a jump to 9.7% from 9.1% in August. In normal circumstances that may have triggered a reaction but these are anything but normal. Markets are still pricing in a more than 70% chance of a 75 basis point rate hike from the ECB next month with an outside chance of 1%. The euro is slightly lower following the release which also showed core inflation rising a little higher than expected to 4.8%.

Sterling recovers as the UK is revised out of a potential recession

We’re seeing the third day of gains for the pound which has now recovered the bulk of the losses sustained after the “mini-budget” a week ago. This is not a sign of investors coming around the new Chancellor’s unfunded tax-cutting, but rather a reflection of the work done since to calm the market reaction. That includes the emergency intervention from the BoE, talk of measures to balance the cost of the tax cuts, reported discussions with the OBR and rumoured unrest within the Tory party. We’ll have to see what that amounts to and sterling could certainly react negatively again to inaction or the wrong action.

GDP data this morning brought some good news, although as far as positive updates go, this is surely towards the more insignificant end. The UK is not in recession after the second quarter GDP was revised up from -0.1% to +0.2%. While all positive revisions are welcome, the technical recession wasn’t really significant in the first place. The important thing was that the UK is struggling to grow and facing a probable deeper recession down the road and today’s revision doesn’t change that. ​

Disappointing Chinese surveys

China’s PMIs highlighted the widening gulf between the performance of state-owned firms versus their private competition. It goes without saying that being backed by the state in uncertain times like this carries certain advantages and that has been evident for some time.

Private firms have been more sensitive to Covid restrictions and have therefore been heavily hampered this year. Still, even with those state-backed benefits, the headline PMI was far from encouraging rising to 50.1 and barely in growth territory. With the non-manufacturing PMI also slipping from 52.6 to 50.6, it’s clear that the economy still faces enormous headwinds and the global economy stalling around it will only add to them.

BoJ ramps up bond purchases amid higher yields

The Bank of Japan ramped up bond purchases overnight as it continues to defend its yield curve control thresholds in volatile market conditions. Rising global yields have forced the central bank to repeatedly purchase JGBs in order to maintain its target. There has been a growing expectation that the BoJ could tweak its 0% target or widen the band it allows fluctuations between in order to ease the pressure on the currency but that’s not been forthcoming, with the MoF instead intervening in the markets for the first time since 1998. The intervention doom loop continues.

RBI rate hike and credit line

The Reserve Bank of India hiked the repo rate by 50bps to 5.9% on Friday, in what will likely be one of its final tightening measures in the fight against inflation. The decision was widely expected and followed shortly after by guidance to state-run refiners to reduce dollar buying in spot markets through the use of a $9 billion credit line. The strength of the dollar is posing a risk to countries around the world, as we’ve seen very clearly in recent weeks as mentioned above, and measures like this will seek to alleviate those pressures. Much more will be needed to make any significant difference though.

Oil edges higher into the weekend

Oil prices are rising again as we head into the weekend, with the focus now on the OPEC+ next week. There’s been plenty of rumours about how the alliance will respond to the deteriorating economic outlook and lower prices. A sizeable cut now looks on the cards, the question is whether it will be large enough to offset the demand destruction caused by the impending economic downturn. Not to mention how any cut would work considering the shortfall in output targets throughout this year.

Brent continues to trade around the March to August lows having traded below here over the last week amid recession fear in the markets. We’re now seeing some resistance around $88, perhaps a sign that traders don’t believe OPEC+ will deliver a large enough cut to make a significant difference.

Encouraging but maybe not sustainable

Gold is making gains for a fourth consecutive day after a difficult start to the week. While the recovery has been encouraging, it’s hard to imagine it building on it in any significant way as that would probably require rate expectations to have peaked and inflation perhaps to have as well. While that may be the case, it’s hard to imagine pressure easing from here which may maintain pressure on the yellow metal for a little longer yet.

Key resistance to the upside lies around $1,680 and $1,700, with $1,620 and $1,600 below being of interest.

A period of stability is what bitcoin needs

It’s been a very choppy week in bitcoin which has failed to make a sustainable run in either direction despite attempts at both. Perhaps we are seeing a floor forming a little shy of the early summer lows around $17,500, although that will very much depend on risk appetite not plummeting once more which it very much has the potential to do. I keep using the word resilience when discussing bitcoin and that has very much remained the case. It did also struggle to build on the rally earlier this week, even hold it into the end of the day, so perhaps a period of stability is what it needs.

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.

Crude Oil

Oil Prices Decline for Third Consecutive Day on Weaker Economic Data and Inventory Concerns

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Crude Oil

Oil prices extended their decline for the third consecutive day on Wednesday as concerns over weaker economic data and increasing commercial inventories in the United States weighed on oil outlook.

Brent oil, against which Nigerian oil is priced, dropped by 51 cents to $89.51 per barrel, while U.S. West Texas Intermediate crude oil fell by 41 cents to $84.95 a barrel.

The softening of oil prices this week reflects the impact of economic headwinds on global demand, dampening the gains typically seen from geopolitical tensions.

Market observers are closely monitoring how Israel might respond to Iran’s recent attack, though analysts suggest that this event may not significantly affect Iran’s oil exports.

John Evans, an oil broker at PVM, remarked on the situation, noting that oil prices are readjusting after factoring in a “war premium” and facing setbacks in hopes for interest rate cuts.

The anticipation for interest rate cuts received a blow as top U.S. Federal Reserve officials, including Chair Jerome Powell, refrained from providing guidance on the timing of such cuts. This dashed investors’ expectations for significant reductions in borrowing costs this year.

Similarly, Britain’s slower-than-expected inflation rate in March hinted at a delay in the Bank of England’s rate cut, while inflation across the euro zone suggested a potential rate cut by the European Central Bank in June.

Meanwhile, concerns about U.S. crude inventories persist, with a Reuters poll indicating a rise of about 1.4 million barrels last week. Official data from the Energy Information Administration is awaited, scheduled for release on Wednesday.

Adding to the mix, Tengizchevroil announced plans for maintenance at one of six production trains at the Tengiz oilfield in Kazakhstan in May, further influencing market sentiment.

As the oil market navigates through a landscape of economic indicators and geopolitical events, investors remain vigilant for cues that could dictate future price movements.

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Commodities

Dangote Refinery Cuts Diesel Price to ₦1,000 Amid Economic Boost

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Aliko Dangote - Investors King

Dangote Petroleum Refinery has reduced the price of diesel from ₦1200 to ₦1,000 per litre.

This price adjustment is in response to the demand of oil marketers, who last week clamoured for a lower price.

Just three weeks ago, the refinery had already made waves by lowering the price of diesel to ₦1,200 per litre, a 30% reduction from the previous market price of around ₦1,600 per litre.

Now, with the latest reduction to ₦1,000 per litre, Dangote Refinery is demonstrating its commitment to providing accessible and affordable fuel to consumers across the country.

This move is expected to have far-reaching implications for Nigeria’s economy, particularly in tackling high inflation rates and promoting economic stability.

Aliko Dangote, Africa’s richest man and the owner of the refinery, expressed confidence that the reduction in diesel prices would contribute to a drop in inflation, offering hope for improved economic conditions.

Dangote stated that the Nigerian people have demonstrated patience amidst economic challenges, and he believes that this reduction in diesel prices is a step in the right direction.

He pointed out the aggressive devaluation of the naira, which has significantly impacted the country’s economy, and sees the price reduction as a positive development that will benefit Nigerians.

With this latest move, Dangote Refinery is not only reshaping the fuel market but also reaffirming its commitment to driving positive change and progress in Nigeria.

The reduction in diesel prices is expected to provide relief to consumers, businesses, and various sectors of the economy, paving the way for a brighter and more prosperous future.

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Crude Oil

IEA Cuts 2024 Oil Demand Growth Forecast by 100,000 Barrels per Day

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Crude Oil

The International Energy Agency (IEA) has reduced its forecast for global oil demand growth in 2024 by 100,000 barrels per day (bpd).

The agency cited a sluggish start to the year in developed economies as a key factor contributing to the downward revision.

According to the latest Oil Market Report released by the IEA, global oil consumption has continued to experience a slowdown in growth momentum with first-quarter growth estimated at 1.6 million bpd.

This figure falls short of the IEA’s previous forecast by 120,000 bpd, indicating a more sluggish demand recovery than anticipated.

With much of the post-Covid rebound already realized, the IEA now projects global oil demand to grow by 1.2 million bpd in 2024.

Furthermore, growth is expected to decelerate further to 1.1 million bpd in the following year, reflecting ongoing challenges in the market.

This revision comes just a month after the IEA had raised its outlook for 2024 oil demand growth by 110,000 bpd from its February report.

At that time, the agency had expected demand growth to reach 1.3 million bpd for 2024, indicating a more optimistic outlook compared to the current revision.

The IEA’s latest demand growth estimates diverge significantly from those of the Organization of the Petroleum Exporting Countries (OPEC). While the IEA projects modest growth, OPEC maintains its forecast of robust global oil demand growth of 2.2 million bpd for 2024, consistent with its previous assessment.

However, uncertainties loom over the global oil market, particularly due to geopolitical tensions and supply disruptions.

The IEA has highlighted the impact of drone attacks from Ukraine on Russian refineries, which could potentially disrupt fuel markets globally.

Up to 600,000 bpd of Russia’s refinery capacity could be offline in the second quarter due to these attacks, according to the IEA’s assessment.

Furthermore, unplanned outages in Europe and tepid Chinese activity have contributed to a lowered forecast of global refinery throughputs for 2024.

The IEA now anticipates refinery throughputs to rise by 1 million bpd to 83.3 million bpd, reflecting the challenges facing the refining sector.

The situation has raised concerns among policymakers, with the United States expressing worries over the impact of Ukrainian drone strikes on Russian oil refineries.

There are fears that these attacks could lead to retaliatory measures from Russia and result in higher international oil prices.

As the global oil market navigates through these challenges, stakeholders will closely monitor developments and adjust their strategies accordingly to adapt to the evolving landscape.

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