Markets

Must the BoE Now Consider Larger Rate Hikes? Fed on Course to Pause? Oil Bounces Back

The central bank has raised interest rates for the last 12 meetings in a row and yet the economy is showing the kind of resilience that few would have anticipated

Published

1 year ago

June 14, 2023

Investors King

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

A truly devastating jobs report for BoE policymakers

It’s not often that you would refer to a jobs report that delivers a drop in unemployment, record employment and a rise in wages as horrible, but that is exactly what the Bank of England will be feeling today.

The central bank has raised interest rates for the last 12 meetings in a row and yet the economy is showing the kind of resilience that few would have anticipated. This creates an enormous headache for the MPC as it desperately wants to avoid crashing the economy in order to weaken the labour market and get wages and inflation down to more sustainable levels but that’s looking increasingly possible at these levels.

A rate hike at the next meeting is now unavoidable – assuming it wasn’t already – but a 50 basis point increase could suggest the BoE is throwing in the towel in trying to deliver 2% inflation and a soft landing for the economy. And the withdrawal of any votes for a pause will be equally important as the scale of the hike – we’ve seen two for four consecutive meetings – and would be another strong sign that the BoE is very concerned.

Is a Fed pause as locked in as markets think?

What the BoE would give to now be in the Fed’s position. Inflation is falling and has been for almost a year, while core inflation is also on the decline even if it stands above 5% which is still too high. But progress is clear and there is plenty of optimism that the trend will continue, enabling the Fed to perhaps not just pause tomorrow – which markets are heavily pricing in – but maybe even bring an end to the tightening cycle altogether.

Not that they’ll be ready to acknowledge that yet but a pause will certainly be a step in the right direction. The BoE will be wondering where they’ve gone so wrong. Having been one of the first out of the traps, they may be the last to cross the finish line.

Oil bounces back amid more favourable developments

Oil prices are staging a comeback today, perhaps buoyed by the softer inflation data which may open the door to the end of the Fed’s tightening cycle and enable the soft landing it always hoped for. That said, there may be a technical element to it as well, with the price having traded around its 2023 lows in the run-up to the release.

There was always likely to be two bullish cases for crude and this only slightly aids one of those. Another unified move from OPEC+ could have been that but instead the Saudis were forced to go it alone. The other was a stronger economy which has looked increasingly unlikely recently but positive inflation reports from the US and eurozone and a rate cut in China certainly help that case. There’s still a long way to go.

Gold traders seemingly not so upbeat

Gold isn’t aboard the Fed pause train yet though, in fact, it slipped after the inflation report which may suggest not everyone is on the same page. This may be a reflection of the still stubborn core inflation number that while enabling no more hikes could keep rates higher for longer. But clearly, what the Fed does and says tomorrow could play a big role in whether we see a breakout from the range gold has traded in over recent weeks. Based on today’s response, traders may not be feeling so upbeat. The question is will the Fed change that or compound those fears?

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Crude Oil

Oil Prices Surge as Hurricane Threat Looms Over U.S. Gulf Coast

Published

3 days ago

September 9, 2024

Investors King

Oil jumped in Asian trading on Monday as a potential hurricane system approached the U.S. Gulf Coast, and as markets recovered from a selloff following weaker-than-expected U.S. jobs data on Friday.

West Texas Intermediate crude oil rose 72 cents, or 1.06%, to $68.39 a barrel while Brent crude oil was up 71 cents, or 1%, at $71.77 a barrel.

Prices had gained as much as $1 during early Asian trading before pulling back.

Analysts said the bounce was in part a reaction to a potential hurricane in the U.S. Gulf Coast.

A weather system in the southwestern Gulf of Mexico is forecast to become a hurricane before it reaches the northwestern U.S. Gulf Coast, the U.S. National Hurricane Center said on Sunday.

The U.S. Gulf Coast accounts for some 60% of U.S. refining capacity.

“Sentiment recovered somewhat from last week’s selloff,” said independent market analyst Tina Teng.

At the Friday close, Brent had dropped 10% on the week to the lowest level since December 2021, while WTI fell 8% to its lowest close since June 2023 on weak jobs data in the U.S.

A highly anticipated U.S. government jobs report showed nonfarm payrolls increased less than market watchers had expected in August, rising by 142,000, and the July figure was downwardly revised to an increase of 89,000, which was the smallest gain since an outright decline in December 2020.

A decline in the jobless rate points to the Federal Reserve cutting interest rates by just 25 basis points this month rather than a half-point rate cut, analysts said.

Lower interest rates typically increase oil demand by spurring economic growth and making oil cheaper for holders of non-dollar currencies.

But weak demand continued to cap price gains.

The weakness in China is driven by economic slowdown and inventory destocking, Jeff Currie, chief strategy officer of energy pathways at U.S. investment giant Carlyle Group, told the APPEC energy conference in Singapore on Monday.

Refining margins in Asia have slipped to their lowest seasonal levels since 2020 on weak demand from the two largest economies.

Fuel oil exports to the U.S. Gulf Coast fell to the lowest level since January 2019 last month on weaker refining margins.

Crude Oil

Oil Prices Rebound on OPEC+ Output Delay Talks and U.S. Inventory Drop

Published

7 days ago

September 5, 2024

Samed Olukoya

Oil prices made a modest recovery on Thursday on the expectations that OPEC+ may delay planned production increases and the drop in U.S. crude inventories.

Brent crude oil, against which Nigerian oil is priced, rose by 66 cents, or 0.9% to $73.36 per barrel while U.S. West Texas Intermediate (WTI) crude appreciated by 64 cents or 0.9% to $69.84 per barrel.

The rebound in oil prices was a result of the American Petroleum Institute (API) report that revealed that the U.S. crude oil inventories had fallen by a surprising 7.431 million barrels last week, against analysts 1 million barrel decline projection.

The decline signals better than projected demand for the commodity in the United States of America and offers some relief for traders on global demand.

John Evans, an analyst at PVM Oil Associates, attributed the rebound in crude oil prices to the API report.

He said, “There is a pause of breath and light reprieve for oil prices.”

Also, discussions within the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, are fueling speculation about a potential delay in planned output increases.

The group was initially expected to increase production by 180,000 a day in October 2024.

However, concerns over softening demand in China and potential developments in Libya’s oil production have prompted the group to reconsider its strategy.

Despite the recent rebound, analysts caution that lingering uncertainties around global oil demand may continue to weigh on prices in the near term.

Energy

Power Generation Surges to 5,313 MW, But Distribution Issues Persist

Published

1 week ago

September 4, 2024

Samed Olukoya

Nigeria’s power generation continues to get better under the leadership of President Bola Ahmed Tinubu.

According to the latest statement released by Bolaji Tunji, the media aide to the Minister of Power, Adebayo Adelabu, power generation surged to a three-year high of 5,313 megawatts (MW).

“The national grid on Monday hit a record high of 5,313MW, a record high in the last three years,” the statement disclosed.

Reacting to this, the Minister of Power, Adebayo Adelabu, called on power distribution companies to take more energy to prevent grid collapse as the grid’s frequency drops when power is produced and not picked by the Discos.

He added that efforts would be made to encourage industries to purchase bulk energy.

However, a top official of one of the Discos was quoted as saying that the power companies were finding it difficult to pick the extra energy produced by generation companies because they were not happy with the tariff on other bands apart from Band A.

“As it is now, we are operating at a loss. Yes, they supply more power but this problem could be solved with improved tariff for the other bands and more meter penetration to recover the cost,” the Disco official, who pleaded not to be named due to lack of authorisation to speak on the matter, said.

On Saturday, the ministry said power generation that peaked at 5,170MW was ramped down by 1,400MW due to Discos’ energy rejection.