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Treading Water

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

Markets are treading water ahead of the release of the first jobs report of the new year, with investors very aware of just how important this could be after last month’s setback.

The November report contained everything the Federal Reserve did not want to see. Strong jobs growth – with upward revisions to prior releases – much higher wages than anticipated and weaker participation. If that’s a blip in the trend, it’s no big deal. But a second consecutive month would deliver a sledgehammer to hopes of a lower terminal rate.

The Fed has remained extremely hawkish throughout all of this, through fear of feeding investors’ craving for a dovish pivot and unintentionally easing financial conditions. But another strong jobs report today would further justify such a hawkish approach and perhaps send risk assets into a bit of a tailspin as the prospect of a higher terminal rate increases alongside recession risks.

We don’t often put so much weight on one report but last month was a big setback and a second would make it very difficult to argue that the trend is still positive. Headline inflation will probably decline this year due to favourable base effects and lower energy prices but the Fed has for a long time now been much more fearful of entrenched inflation which is why there’s so much focus on the tightness of the labour market and wages. They’re unlikely to stop hiking soon unless there’s progress here.

ECB to be unfazed by inflation data

Eurozone inflation fell to 9.2%, well below the 9.6% expected and a big decline from November’s 10.1% reading. Policymakers at the ECB will not be in a celebratory mood though for a number of reasons. The most obvious is that it’s still way too high, almost five times its target.

The second is that it’s primarily driven by declines in energy prices which while helpful doesn’t solve the inflation problem. And finally, core inflation actually rose to 5.2% from 5% which proves there’s still work to be done. While the euro was choppy after the release, the consensus view appears to be that today’s data changes nothing and another 1% of rate hikes will come over the next couple of meetings.

Steadying after a rough week

Oil prices are creeping higher again this morning after steadying on Thursday. They came under some pressure over the previous 48 hours amid concerns about China’s economy over the next quarter or two. A lack of trustworthy data doesn’t help that situation but with Covid spreading so rapidly throughout the country, it’s likely there’s going to be disruption at the very least that will hamper economic activity and demand.

That will likely change in the second half of the year and the economic rebound could fuel more demand for crude and see prices rise once more. The state of the rest of the global economy by that point will determine just how supportive that would be for the price, among other things of course like Russian output and OPEC+ as a whole.

Strong jobs report could be a big blow

Gold pared gains on Thursday before steadying today ahead of the US jobs report. It remains very elevated after a strong start to the year and some weakness on wages and job growth could spark the rally back to life once more.

Of course, another strong jobs report could see its fortune shift the other way and push it back into a corrective phase after a strong recovery since early November. It appeared to be gearing up for a correction late last year but lower yields this week have given it a new lease of life. That could be quickly undone by another strong report.

Into the shadows

Bitcoin remains rangebound between $16,000 and $17,000 where it has spent much of the last month. The jobs report today may bring it back to life a little but in reality, crypto fans are probably happy to see it steadying and drifting into the background as the industry recovers from the trauma of the FTX collapse. It’s weak and vulnerable at the minute and any more shocks could be extremely damaging.

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 - Investors King

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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