Markets

BOE Keeps Interest Rate on Hold as Inflation Seen Cooling Faster

Published

6 years ago

May 10, 2018

BOE Keeps Interest Rate on Hold as Inflation Seen Cooling Faster

The Bank of England kept interest rates on hold after a first-quarter economic slump and said inflation will slow faster than previously anticipated.

The Monetary Policy Committee voted 7-2 to hold at 0.5 percent, as predicted by all but three of 54 economists in a Bloomberg survey. While Ian McCafferty and Michael Saunders reiterated their support for an immediate increase, investors pared their bets on a rate hike this year. The pound fell.

The decision ends a roller-coaster ride for investors who had expected an increase until a few weeks ago, when data revealed a near standstill in economic growth and slower-than-expected inflation. While the BOE keeps alive the prospect of tighter policy to come, its statement suggests a gentle pace.

The pound dropped after the decision, erasing earlier gains. Money markets now show the probability of an August increase in borrowing costs as only about 50 percent, and a hike by the end of the year — previously fully priced in — at about 85 percent.

Sterling dropped 0.3 percent to $1.3505 as of 12:15 p.m. in London, after earlier climbing as much as 0.5 percent.

Explaining their decision to stand pat this month, the majority of the MPC noted the recent weak numbers. They said that “the costs to waiting for additional information were likely to be modest, given the need for only limited tightening over the forecast period.”

Governor Mark Carney will elaborate on the outlook at a press conference at 12:30 p.m. in London.

Future Increases

New forecasts from the central bank showed inflation will slow more sharply, falling to the 2 percent target in two years. But it said this is partly because the pass-through of the pound’s depreciation since the Brexit vote is happening faster. It still sees a small amount of excess demand in the economy by early 2020.

The Inflation Report also showed that about one quarter-point hike a year will be needed to return inflation to the goal after the first increase in a decade last November.

“An ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon,” the BOE said. It repeated its well-worn refrain that future increases will come “at a gradual pace and to a limited extent.”

The BOE isn’t the only central bank to wobble on the exit ramp from the easy money of the past decade, even as the U.S. Federal Reserve sticks to its plan to gradually raise rates. The European Central Bank may now wait until after June to outline its next steps, while the Bank of Japan recently played down when it will reach its 2 percent inflation target. Sweden’s Riksbank and the Bank of Canada have also revised their tightening expectations.

Growth Outlook

In the updated forecasts, the U.K. central bank sees growth at 1.4 percent this year, down from 1.8 percent in February. But it puts all this down to the first-quarter slump, which it suspects will be revised up to 0.3 percent from the initial estimate of 0.1 percent. The bank’s forecasts for 2019 and 2020 were unchanged at 1.7 percent.

The MPC’s two dissenters in favor of tighter policy put more weight on surveys suggesting the slowdown was temporary and signs that domestic inflationary pressures are building.

Their argument hinges on the labor market, where unemployment is the lowest since the 1970s and wage growth is picking up, bolstering their assessment that slack is largely used up.

The central bank reiterated that the economy may be running a bit hot for its potential as negotiations to leave the European Union constrain the supply side. With the split scheduled for March 2019, the BOE said managing the implications of Brexit remains the main challenge for rate setters.

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Samed Olukoya

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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Crude Oil

Oil Prices Climb on Renewed Middle East Concerns and Saudi Supply Signals

Published

16 hours ago

May 6, 2024

Samed Olukoya

As global markets continue to navigate through geopolitical uncertainties, oil prices rose on Monday on renewed concerns in the Middle East and signals from Saudi Arabia regarding its crude supply.

Brent crude oil, against which Nigeria’s oil is priced, surged by 51 cents to $83.47 a barrel while U.S. West Texas Intermediate crude oil rose by 53 cents to $78.64 a barrel.

The recent escalation in tensions between Israel and Hamas has amplified fears of a widening conflict in the key oil-producing region, prompting investors to closely monitor developments.

Talks for a ceasefire in Gaza have been underway, but prospects for a deal appeared slim as Hamas reiterated its demand for an end to the war in exchange for the release of hostages, a demand rejected by Israeli Prime Minister Benjamin Netanyahu.

The uncertainty surrounding the conflict was further exacerbated on Monday when Israel’s military called on Palestinian civilians to evacuate Rafah as part of a ‘limited scope’ operation, sparking concerns of a potential ground assault.

Analysts warned that such developments risk derailing ceasefire negotiations and reigniting geopolitical tensions in the Middle East.

Adding to the bullish sentiment, Saudi Arabia announced an increase in the official selling prices (OSPs) for its crude sold to Asia, Northwest Europe, and the Mediterranean in June.

This move signaled the kingdom’s anticipation of strong demand during the summer months and contributed to the upward pressure on oil prices.

The uptick in prices comes after both Brent and WTI crude futures posted their steepest weekly losses in three months last week, reflecting concerns over weak U.S. jobs data and the timing of a potential Federal Reserve interest rate cut.

However, with most of the long positions in oil cleared last week, analysts suggest that the risks are skewed towards a rebound in prices in the early part of this week, particularly for WTI prices towards the $80 mark.

Meanwhile, in China, the world’s largest crude importer, services activity remained in expansionary territory for the 16th consecutive month, signaling a sustained economic recovery.

Also, U.S. energy companies reduced the number of oil and natural gas rigs operating for the second consecutive week, indicating a potential tightening of supply in the near term.

As global markets continue to navigate through geopolitical uncertainties and supply dynamics, investors remain vigilant, closely monitoring developments in the Middle East and their impact on oil prices.

Crude Oil

Oil Prices Drop Sharply, Marking Steepest Weekly Decline in Three Months

Published

3 days ago

May 4, 2024

Samed Olukoya

Amidst concerns over weak U.S. jobs data and the potential timing of a Federal Reserve interest rate cut, oil prices record its sharpest weekly decline in three months.

Brent crude oil, against which Nigerian oil is priced, settled 71 cents lower to close at $82.96 a barrel.

Similarly, U.S. West Texas Intermediate crude oil fell 84 cents, or 1.06% to end the week at $78.11 a barrel.

The primary driver behind this decline was investor apprehension regarding the impact of sustained borrowing costs on the U.S. economy, the world’s foremost oil consumer. These concerns were amplified after the Federal Reserve opted to maintain interest rates at their current levels this week.

Throughout the week, Brent experienced a decline of over 7%, while WTI dropped by 6.8%.

The slowdown in U.S. job growth, revealed in April’s data, coupled with a cooling annual wage gain, intensified expectations among traders for a potential interest rate cut by the U.S. central bank.

Tim Snyder, an economist at Matador Economics, noted that while the economy is experiencing a slight deceleration, the data presents a pathway for the Fed to enact at least one rate cut this year.

The Fed’s decision to keep rates unchanged this week, despite acknowledging elevated inflation levels, has prompted a reassessment of the anticipated timing for potential rate cuts, according to Giovanni Staunovo, an analyst at UBS.

Higher interest rates typically exert downward pressure on economic activity and can dampen oil demand.

Also, U.S. energy companies reduced the number of oil and natural gas rigs for the second consecutive week, reaching the lowest count since January 2022, as reported by Baker Hughes.

The oil and gas rig count fell by eight to 605, with the number of oil rigs dropping by seven to 499, the most significant weekly decline since November 2023.

Meanwhile, geopolitical tensions surrounding the Israel-Hamas conflict have somewhat eased as discussions for a temporary ceasefire progress with international mediators.

Looking ahead, the next meeting of OPEC+ oil producers is scheduled for June 1, where the group may consider extending voluntary oil output cuts beyond June if global oil demand fails to pick up.

In light of these developments, money managers reduced their net long U.S. crude futures and options positions in the week leading up to April 30, according to the U.S. Commodity Futures Trading Commission (CFTC).

Crude Oil

Oil Prices Rebound After Three Days of Losses

Published

5 days ago

May 2, 2024

Samed Olukoya

After enduring a three-day decline, oil prices recovered on Thursday, offering a glimmer of hope to investors amid a volatile market landscape.

The rebound was fueled by a combination of factors ranging from geopolitical developments to supply concerns.

Brent crude oil, against which Nigeria oil is priced, surged by 79 cents, or 0.95% to $84.23 a barrel while U.S. West Texas Intermediate (WTI) crude climbed 69 cents, or 0.87% to $79.69 per barrel.

This turnaround came on the heels of a significant downturn that had pushed prices to their lowest levels since mid-March.

The recent slump in oil prices was primarily attributed to a confluence of factors, including the U.S. Federal Reserve’s decision to maintain interest rates and concerns surrounding stubborn inflation, which could potentially dampen economic growth and limit oil demand.

Also, unexpected data from the Energy Information Administration (EIA) revealing a substantial increase in U.S. crude inventories added further pressure on oil prices.

“The updated inventory statistics were probably the most salient price driver over the course of yesterday’s trading session,” said Tamas Varga, an analyst at PVM.

Crude inventories surged by 7.3 million barrels to 460.9 million barrels, significantly exceeding analysts’ expectations and casting a shadow over market sentiment.

However, the tide began to turn as ceasefire talks between Israel and Hamas gained traction, offering a glimmer of hope for stability in the volatile Middle East region.

The prospect of a ceasefire agreement, spearheaded by Egypt, injected optimism into the market, offsetting concerns surrounding geopolitical tensions.

“As the impact of the U.S. crude stock build and the Fed signaling higher-for-longer rates is close to being fully baked in, attention will turn towards the outcome of the Gaza talks,” noted Vandana Hari, founder of Vanda Insights.

The potential for a resolution in the Israel-Hamas conflict provided a ray of hope, contributing to the positive momentum in oil markets.

Despite the optimism surrounding ceasefire talks, tensions in the Middle East remain palpable, with Israeli Prime Minister Benjamin Netanyahu reiterating plans for a military offensive in the southern Gaza city of Rafah.

The precarious geopolitical climate continues to underpin volatility in oil markets, reminding investors of the inherent risks associated with the commodity.

In addition to geopolitical developments, speculation regarding U.S. government buying for strategic reserves added further support to oil prices.

With the U.S. expressing intentions to replenish the Strategic Petroleum Reserve (SPR) at prices below $79 a barrel, market participants closely monitored price movements, anticipating potential intervention to stabilize prices.

“The oil market was supported by speculation that if WTI falls below $79, the U.S. will move to build up its strategic reserves,” highlighted Hiroyuki Kikukawa, president of NS Trading, owned by Nissan Securities.

As oil markets navigate a complex web of geopolitical uncertainties and supply dynamics, the recent rebound underscores the resilience of the commodity in the face of adversity.

While challenges persist, the renewed optimism offers a ray of hope for stability and growth in the oil sector, providing investors with a semblance of confidence amidst a volatile landscape.