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Caution Ahead of Midterms and Inflation Data

It’s been a rough couple of days for bitcoin which finds itself back below $20,000 and down more than 4% on the day

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

A cautious start to trading on Tuesday, with investors seemingly having one eye on midterm results in the US and another on Thursday’s inflation data.

It’s hard to see past both of these things this week. The question for many is whether investors will respond positively to the deadlock in Washington. On the one hand, the prospect of less spending could be viewed as aiding the inflation fight but on the other, the economy could be headed for recession, and inaction in government won’t help the situation.

The Republicans are strongly favoured to take back control of the House and with the Senate currently split, they are likely to edge that as well meaning Biden’s economic agenda will come to a standstill ahead of the 2024 election.

Arguably the most important takeaway from the midterms will be how Trump-supporting Republicans fare, particularly those so fiercely sticking to the “stolen election” line, among others. With Trump himself due to make a “big announcement” soon, it would appear he’s about to throw his hat into the ring and declare any victories a show of support for his own nomination.

With the US likely heading for recession, whoever wins the Republican race stands a good chance of winning the race in 2024. It may now become a question of how much of a grip Trump still has on the Republican party and whether the manner of his exit will prove to be a barrier or a supportive factor within the base.

Of course, the more pressing issue in the near term is inflation and so, regardless of the midterm results, we may still see some trepidation in the markets ahead of Thursday’s release. The Fed has made clear it intends to slow the pace of tightening in December and this data could either throw that into question or start to build the case for a lower terminal rate than the central bank hinted at last week.

Oil pares gains as China Covid cases jump

Oil prices are easing a little on Tuesday, a day after Brent crude came within a whisker of $100 again. It’s traded below this major psychological level since July but recent developments have propelled the price higher again, up more than 20% from the September lows.

OPEC+ had a big hand to play in that but speculation around China’s zero-Covid commitment may also be a factor in recent gains. That said, those rumours still haven’t been confirmed and in fact, outbreaks in Guangzhou and other major cities have led to increased restrictions. It may be a little early to get carried away with speculation, especially when any significant change in policy would represent an enormous shift from the status quo. Still, the performance of Chinese stocks suggests there’s a belief that there’s no smoke without fire, which may also be enabling the continued rise in crude.

Gold edges lower amid a stronger dollar

The dollar is staging a small recovery around its recent lows which is weighing a little on gold this week. The yellow metal surged late last week following the jobs report before stumbling around $1,680 which has previously been a notable level of resistance. Still, it’s holding onto the bulk of those gains quite well which suggests traders are anticipating some good news from the inflation data on Thursday, at least good enough to convince the Fed of the need to slow the pace of tightening next month.

Anything that suggests they won’t need to rise as high as the Fed indicated could give gold another boost. Although given what the central bank said last week, you have to wonder if they are in fact anticipating another stubborn reading.

Bitcoin plunges below $20,000

It’s been a rough couple of days for bitcoin which finds itself back below $20,000 and down more than 4% on the day. It has recovered a little after previously being off more than 6% but this is a far more severe decline than we’re seeing in other risk assets which may be a worrying sign for crypto bulls. The declines may be linked to the plunge in FTT which nosedived amid reported concerns over Alameda’s┬ábalance sheet. We’ve seen this kind of situation have ripple effects on prices before and this may explain the sharper declines we’re seeing this week.

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.

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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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