Today’s markets – Powell, Fed, RBA, China Trade Data, Oil, Gold, Bitcoin
By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
It’s shaping up to be another relatively flat day in the markets as investors turn their attention to Capitol Hill ahead of Jerome Powell’s first testimony.
The Fed Chair will appear before the Senate Banking Committee later today to testify on the semi-annual monetary policy report. These events naturally attract a lot of attention but the reality is the Chair’s performance is usually quite polished and uncontroversial, and the occasion itself can drag on and frequently venture away from topic. In other words, we shouldn’t assume we’re about to get fireworks from Powell.
What may make this occasion different is the fact that there’s so much uncertainty around the outlook for interest rates and inflation. While the Fed has maintained that rate hikes must continue, the economic data from January has forced markets to adjust to that reality too so there’s every chance we get a hawkish offensive from Powell.
Considering the likelihood of the January data being a blip rather than a trend, I think it would probably be wiser for Powell to maintain his previous tone as he may risk spooking the markets but if the FOMC truly is weighing up a 50 basis point hike this month, this would be a good opportunity to lay the groundwork for it.
Nearing the end
The RBA appeared to soften its tone once more after hiking rates by another 25 basis points today. The central bank is now of the opinion that inflation has peaked and so multiple rate hikes may no longer be the base case. That said, the RBA will decide meeting by meeting and a lot can change in between. Markets are now pricing in at least one more hike in the cycle and maybe two. The Australian dollar is a little lower on the day as the decision was perceived to be a dovish hike.
Some promising signs
Chinese trade data highlighted some modest improvements but remain quite weak overall. The drop in imports can possibly be attributed to some one-off factors including Covid exit waves and the Lunar New Year and the data will surely improve over the coming months as the economy returns to normal. Exports remained under pressure, although the number was better than expected, indicating still soft global demand which aligns with what we’ve seen recently elsewhere.
Pushing the highs
Oil prices rebounded again on Monday, the second day in a row that they’ve reversed sizeable early losses to end the day in positive territory. They’re now on a good run and traders were clearly not deterred by China’s modest growth target for long. Against that backdrop, it may well be the case that Brent and WTI are about to test the upper end of their trading ranges that they’ve remained within since early December.
A break above $89 would be a very bullish signal for Brent while the same would be true of $83 in WTI. Whether they have the momentum to pull that off may well depend on Powell’s dual testimonies and/or Friday’s jobs data.
Gold is edging tentatively higher ahead of Powell’s testimony, during which conditions could become much more volatile. The yellow metal has run into resistance around $1,860 this week which was always likely to be the first test to the upside. Above here, $1,890-$1,900 will be a big test, should it get that far.
Of course, all of this may simply depend on what Powell has to say. A hawkish testimony could wipe out any bullish momentum built up over the last week, at which point attention will shift back to the lows around $1,780-$1,800.
Hanging on in there
Bitcoin has been in consolidation since Friday’s sell-off with traders seemingly fearful of further ripple effects but still willing to hang on for now just in case. It’s been a fantastic year for crypto so far but events late last week were a quick reminder of the challenges facing the industry in the short term and the consequences of that. There’ll also be an eye on Powell’s testimony today as it may influence overall risk appetite in the markets.
Oil Prices Rise Amid Supply Disruption and Optimism in Banking Sector
Crude oil prices continued their upward trend on Tuesday following significant gains recorded the previous day.
The increase was driven by concerns over supply disruption in Iraqi Kurdistan, as well as hopes that turmoil in the banking sector is being contained.
Brent crude oil, against which Nigerian oil is priced, rose by 0.4% to $78.44 a barrel while the West Texas Intermediate U.S. crude oil was up 0.4% to $73.07 per barrel.
These gains were recorded after prices surged more than $3 on Monday, largely because of the reports that Iraq halted exports of about 450,000 barrels per day from its northern Kurdistan region through Turkey.
According to Barclays, the Iraqis issue could last unit the end of the year. The bank, therefore, revised upward its prediction by $3 to $92 a barrel for Brent for 2023.
The announcement that First Citizens BancShares Inc will acquire deposits and loans of Silicon Valley Bank also contributed to the positive sentiment, sending European bank shares higher.
However, PVM Oil analyst Tamas Varga warned that concerns about financial stability could still trigger a flight out of risk, saying, “At the moment, concerns about the risk to financial stability have been relegated to the back of investors’ minds, but another bank run could trigger a flight out of risk again.”
China’s crude oil imports are expected to rise by 6.2% in 2023 to 540 million tonnes, according to a forecast by a research unit of China National Petroleum Corp. This is expected to further support oil prices, as is Russia’s focus on boosting energy exports to friendly countries.
Meanwhile, U.S. crude oil stockpiles were seen rising by about 200,000 barrels last week, according to a preliminary Reuters poll. The American Petroleum Institute will publish its inventory data later on Tuesday, followed by the U.S. Energy Information Administration on Wednesday.
Nigerians Brace for N750 per Litre of Petrol as Deregulation Looms
The downstream sector of the Nigerian oil and gas industry is set to undergo complete deregulation in the coming months, and industry stakeholders are warning that Nigerians should prepare for petrol prices as high as N750 per litre at filling stations.
During an online workshop, organised by industry stakeholders in collaboration with the African Refiners and Distributors Association (ARDA), participants outlined strategies and measures that should be deployed to ensure sustainable removal of petrol subsidy.
National President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Mr. Chinedu Okoronkwo, warned Nigerians of the impending price hike and urged the government to channel expected savings from subsidy removal to provision of palliatives for the masses.
Although the projected pump price is likely to drop to around N500 if the government encourages the Central Bank of Nigeria (CBN) to provide foreign exchange for marketers at the official rate, the high cost of petrol will undoubtedly have a significant impact on the already struggling Nigerian economy.
Nigeria is currently struggling to find buyers for its crude oil, with strikes in the French refining sector and seasonal maintenance at plants elsewhere in Europe cutting into the Organisation of Petroleum Exporting Countries (OPEC) producer’s sales.
In light of these challenges, former Chief of Policy and Plans, Nigerian Navy, Rear Admiral Henry Babalola (rtd), called on the federal government to prosecute persons involved in oil theft for treason. Babalola expressed disappointment with the government’s poor handling of the oil theft issue, which he said was destroying the country’s revenue base.
The deregulation of the downstream sector is expected to end the wasteful petrol subsidy regime before the end of President Muhammadu Buhari’s tenure on May 29, 2023.
As Nigerians brace for the anticipated price hike, it is crucial that the government implements appropriate palliatives to alleviate the burden on the masses and ensure transparency in communication about the issue.
Oil Prices Rise Amidst Global Banking Concerns and Russian Nuclear Tensions
Oil prices rose on Monday as investors evaluated efforts by authorities to address concerns about the global banking system.
Brent crude oil, against which Nigerian oil is priced increased by 1.03% or 77 cents, reaching $75.76 a barrel at 9:00 am, while the US West Texas Intermediate crude rose by 1.03% or 74 cents to $70 a barrel. This follows a 2.8% increase in Brent and a 3.8% rebound in WTI as concerns in the banking sector decreased.
Despite the oil fundamentals remaining on the sidelines, crude markets are observing the sentiment in the financial market, according to Vandana Hari, the founder of oil market analysis provider Vanda Insights.
Hari stated, “Expect most price action in Brent and WTI futures to occur during the Europe and US trading hours, marked by plenty of intraday volatility.” Hari added that a strong rebound is not expected until the banking crisis is fully resolved, which may take days or weeks.
In other news, First Citizens BancShares Inc announced that it will acquire the deposits and loans of Silicon Valley Bank, closing one chapter in the financial market crisis. Furthermore, the US authorities are reportedly discussing expanding emergency lending facilities, which has given hopes for additional support for bank funding.
Oil prices have also gained support from Russian President Vladimir Putin’s announcement to place tactical nuclear weapons in Belarus, which has escalated tensions in Europe. It is one of Russia’s most significant nuclear signals yet, and it serves as a warning to NATO over its military support for Ukraine.
In response, Ukraine has called for a meeting of the United Nations Security Council, and NATO criticized Putin’s “dangerous and irresponsible” nuclear rhetoric.
Despite the rise in oil prices, Russia’s Deputy Prime Minister Alexander Novak has reported that Moscow is on the verge of achieving its target of reducing crude output by 500,000 barrels per day (bpd) to around 9.5 million bpd.
However, according to industry sources and Reuters calculations, Russia’s crude exports are expected to remain steady as it cuts refinery output in April. Since September 2022, Russian crude stocks have been increasing, and experts suggest that if Russia wants to draw down the inventories it has built, output cuts may need to be extended beyond June.
Meanwhile, in France, industrial action is affecting refineries, reducing crude demand and fuel production. Investors are awaiting China’s manufacturing and services purchasing managers’ indexes for cues on demand from the world’s leading crude oil importer.
According to Baker Hughes Co, oil rigs rose by four to 593 last week in the US, up for the first time in six weeks, while gas rigs held steady at 162.
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