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Is the UK Already in Recession?

Stock markets are recovering slightly on Wednesday after another volatile start to the week.

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

Stock markets are recovering slightly on Wednesday after another volatile start to the week.

It’s clear this week that investors have one eye on the US, with Fed minutes this evening, US inflation data tomorrow and the start of earnings season likely to be the primary drivers into Friday’s close.

Any hope of a helping hand from the Fed minutes may not be forthcoming, with the commentary to an extent outdated at this point and policymakers seemingly unified in their goal of defeating inflation. Even a good CPI number tomorrow may do little to change that in the near-term.

Sterling jumps on BoE reports

The FT has reported that the BoE could extend its emergency bond-buying measures beyond Friday in order to ensure continued stability in the market which has lifted the pound in early trade. While Governor Bailey’s warnings to pension funds this week gave the impression there’s no turning back, it would appear that isn’t entirely true.

And that shouldn’t be as surprising as it seemingly is. While the hope within the central bank will be that its emergency measures have allowed pension funds to recalibrate and address the vulnerability in the bond market, if that doesn’t prove to be the case it would be ridiculous to pull the rug from under it rather than extend the measures until the end of the month when we get the full budget.

Still, at a time when investors are living in fear of what’s around the corner, perhaps the mindset of “prepare for the worst and hope for the best” is behind it. It does go to show how huge the Chancellor’s budget is in three weeks and the carnage that another misstep could cause. The BoE can buy the government time for now but it isn’t a permanent solution.

UK may already be in recession after GDP miss

The rebound in sterling held even as we received some pretty bleak GDP data for August that suggests the UK may already be in recession. I mean, most people already agree that the country is in recession but we’re just waiting for the data to technically confirm it. The numbers weren’t good though, with a 1.6% manufacturing slump driving a 1.8% decline in production. Meanwhile, consumer-facing services fell sharply by 1.8%, with overall services dropping by 0.1%.

All in all, the numbers are pretty grim and I don’t see much scope for improvement in the near future, particularly on the consumer side. Perhaps the minor reaction is a reflection of the fact that most already believe the economy to be in recession and the data just confirms that, despite falling short of analyst expectations.

BoK end game in sight

The Bank of Korea hiked interest rates by 50 basis points overnight, taking the Base Rate to 3% and not far below what it believes to be the terminal rate of around 3.5%. The move was widely expected, with the central bank still concerned about external conditions and a weaker won. Time will tell whether the central bank will indeed start to ease off the brake but today’s comments suggest that, much like the RBA, the end game is now in sight.

Edging higher but growth concerns remain

Oil prices are nudging higher after paring recent gains so far this week. There are two dominant forces in the oil market at the moment; the economic outlook being the primary downside risk and OPEC+ the upside. The latter reasserted itself last week with the two million barrel per day cut (much less in reality, of course) but growth fears are still dominating in the markets which may stop the price from taking off. We could also see further coordinated action from consuming countries on the SPR after a frustrated response – to put it mildly – to the alliance’s output cut.

Paring losses but optimism running thin

Gold is edging higher amid a slight softening in the dollar and marginally lower yields. I’m not sure anyone is getting too excited by today’s rebound but coming after a week of declines, we may just be seeing some profit-taking ahead of the Fed minutes and inflation data. They will be the core focus for gold traders over the next 36 hours and given the response in the markets over the last week, they don’t appear overly optimistic.

Remains in consolidation

Bitcoin is seeing small gains on Wednesday, with the cryptocurrency up less than 1% and still holding above $19,000. While the overall trend in recent days has been lower, the moves have been relatively mild and look more consolidatory than anything more worrying. The longer trend of consolidation around $20,000 remains intact which is the most important thing. Whether that will be the case at the end of the week, much like elsewhere, will depend on the Fed minutes and inflation data.

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 Continue to Slide: Drops Over 1% Amid Surging U.S. Stockpiles

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Crude Oil

Amidst growing concerns over surging U.S. stockpiles and indications of static output policies from major oil-producing nations, oil prices declined for a second consecutive day by 1% on Wednesday.

Brent crude oil, against which the Nigerian oil price is measured, shed 97 cents or 1.12% to $85.28 per barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude slumped by 93 cents or a 1.14% fall to close at $80.69.

The recent downtrend in oil prices comes after they reached their highest level since October last week.

However, ongoing concerns regarding burgeoning U.S. crude inventories and uncertainties surrounding potential inaction by the OPEC+ group in their forthcoming technical meeting have exacerbated the downward momentum.

Market analysts attribute the decline to expectations of minimal adjustments to oil output policies by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, until a full ministerial meeting scheduled for June.

In addition to concerns about excess supply, the market’s attention is also focused on the impending release of official government data on U.S. crude inventories, scheduled for Wednesday at 10:30 a.m. EDT (1430 GMT).

Analysts are keenly observing OPEC members for any signals of deviation from their production quotas, suggesting further volatility may lie ahead in the oil market.

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Energy

Nigeria Targets $5bn Investments in Oil and Gas Sector, Says Government

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Crude Oil - Investors King

Nigeria is setting its sights on attracting $5 billion worth of investments in its oil and gas sector, according to statements made by government officials during an oil and gas sector retreat in Abuja.

During the retreat organized by the Federal Ministry of Petroleum Resources, Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, explained the importance of ramping up crude oil production and creating an environment conducive to attracting investments.

He highlighted the need to work closely with agencies like the Nigerian National Petroleum Company Limited (NNPCL) to achieve these goals.

Lokpobiri acknowledged the challenges posed by issues such as insecurity and pipeline vandalism but expressed confidence in the government’s ability to tackle them effectively.

He stressed the necessity of a globally competitive regulatory framework to encourage investment in the sector.

The minister’s remarks were echoed by Mele Kyari, the Group Chief Executive Officer of NNPCL, who spoke at the 2024 Strategic Women in Energy, Oil, and Gas Leadership Summit.

Kyari stressed the critical role of energy in driving economic growth and development and explained that Nigeria still faces challenges in providing stable electricity to its citizens.

Kyari outlined NNPCL’s vision for the future, which includes increasing crude oil production, expanding refining capacity, and growing the company’s retail network.

He highlighted the importance of leveraging Nigeria’s vast gas resources and optimizing dividend payouts to shareholders.

Overall, the government’s commitment to attracting $5 billion in investments reflects its determination to revitalize the oil and gas sector and drive economic growth in Nigeria.

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Commodities

Palm Oil Rebounds on Upbeat Malaysian Exports Amid Indonesian Supply Concerns

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Palm oil prices rebounded from a two-day decline on reports that Malaysian exports will be robust this month despite concerns over potential supply disruptions from Indonesia, the world’s largest palm oil exporter.

The market saw a significant surge as Malaysian export figures for the current month painted a promising picture.

Senior trader David Ng from IcebergX Sdn. in Kuala Lumpur attributed the morning’s gains to Malaysia’s strong export performance, with shipments climbing by a notable 14% during March 1-25 compared to the previous month.

Increased demand from key regions like Africa, India, and the Middle East contributed to this impressive growth, as reported by Intertek Testing Services.

However, amidst this positivity, investors are closely monitoring developments in Indonesia. The Indonesian government’s contemplation of revising its domestic market obligation policy, potentially linking it to production rather than exports, has stirred market concerns.

Edy Priyono, a deputy at the presidential staff office in Jakarta, indicated that this proposed shift aims to mitigate vulnerability to fluctuations in export demand.

Yet, it could potentially constrain supply availability from Indonesia in the future to stabilize domestic prices.

This uncertainty surrounding Indonesian policies has added a layer of complexity to palm oil market dynamics, prompting investors to react cautiously despite Malaysia’s promising export performance.

The prospect of Indonesian supply disruptions underscores the delicacy of global palm oil supply chains and their susceptibility to geopolitical and regulatory factors.

As the market navigates these developments, stakeholders remain attentive to both export data from Malaysia and policy shifts in Indonesia, recognizing their significant impact on palm oil prices and market stability.

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