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China Cuts Interest Rates

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China stepped up monetary easing with its sixth interest-rate cut in a year to combat deflationary pressures and a slowing economy, moving ahead of anticipated fresh stimulus by central banks from Europe to Japan and possible tightening in the U.S.

The one-year lending rate will be cut to 4.35 percent from 4.6 percent effective Saturday the People’s Bank of China said on its website on Friday, while the one-year deposit rate will fall to 1.5 percent from 1.75 percent. Reserve requirements for all banks were lowered by 50 basis points, with an extra 50 basis point reduction for some institutions.

Authorities are seeking to cushion an economy forecast to grow at the slowest annual rate in a quarter century as old growth drivers such as manufacturing and construction falter and new drivers like consumption struggle to compensate. China’s reduction to record-low rates and anticipated stimulus in Europe and Japan add to monetary policy divergence with the U.S., where the Federal Reserve is considering its first rate increase in nine years.

 “The Fed may be considering raising interest rates, but in much of the rest of the world, China included, central banks are facing weak growth and a lack of inflation, and are thus more likely to ease rather than tighten monetary policy,” said Louis Kuijs, head of Asia economics at Oxford Economics Ltd. in Hong Kong.

Stock-index futures jumped in Hong Kong and European stocks extended gains. The Standard & Poor’s 500 Index was 1.1 percent higher at 10 a.m. in New York.

Complicated Outlook

Overall prices at a relatively low level give room for reduced interest rates, the PBOC said in a Q&A statement after the announcement. The domestic and foreign situation remain complicated, and continued downward pressure on economic growth requires the fine tuning of monetary policy, it said.

The PBOC also scrapped a deposit-rate ceiling that limited the rate banks could pay savers, saying the move was made possible by a decline in market-based interest rates. Removing such controls boosts the role of markets in the economy, part of efforts by Premier Li Keqiang to find new engines of growth and to bolster competition in banking.

 The need for new growth engines was underscored by data Monday that showed the economy expanded 6.9 percent in the three months through September from a year earlier. While that beat economists’ estimates for 6.8 percent, the expansion benefited from an out-sized contribution from financial services after a surge in share trading from the year-earlier period. That prop is unlikely to endure, raising challenges to Li’s growth goal of about 7 percent this year.

Factory Deflation

Meantime, consumer inflation at about half the government’s target and a protracted slump in producer prices added room for additional easing.

“Clearly the People’s Bank of China is on a mission to ease policy and has been for a year,” said George Magnus, a senior independent economic adviser to UBS Group AG in London. “With the economy losing momentum, deflation embedded in the corporate sector and rebalancing making limited headway, the central bank is being directed to ease monetary policy further. And of course, this isn’t the end of the road yet.”

China’s leaders are gathering next week to formulate policies for the nation’s next five-year plan, President Xi Jinping’s first such blueprint. They are expected to announce a dismantling of currency controls, lower barriers for foreign non-bank financial firms, emphasize home-grown technologies and prioritize population growth.

Fed Meeting

The Fed meets next week to mull when to raise its benchmark rate from near zero after holding it there since December 2008. Meanwhile, European Central Bank President Mario Draghi signaled this week that fresh stimulus is on the way, and economists anticipation of further support in Japan next week are higher than for any meeting since the central bank unexpectedly added to its easing policy in October 2014.

China’s rate cut has “mixed implications for U.S. monetary policy,” said Bill Adams, an economist at PNC Financial Services Group.

“To the extent that interest rate cuts reduce downside risks for Chinese and global growth, they should increase the Fed’s confidence that the U.S. economy will be able to absorb higher interest rates,” Adams said. However, “if today’s rate cut spurs a new round of depreciation of the Chinese currency, it will make it more difficult for the Fed to raise interest rates before year-end 2015.”

Capital Outflow

The PBOC’s surprise currency depreciation in August roiled global markets and spurred an exit of cash from China. Capital outflows climbed to $194.3 billion in September, exceeding the previous high of $141.7 billion in August, according to a Bloomberg estimate that also takes into account decisions by exporters and direct investment recipients to hold funds in dollars.

Offsetting such a leakage, analysts at Everbright Securities Co. said the RRR reduction would release at least 800 billion yuan ($126 billion) of liquidity.

The PBOC uses the reserve ratio to control the amount of available cash in the economy. In the years of capital inflows, it increased the amount of deposits banks had to lock away to ensure excessive liquidity didn’t spur inflation. This year, with growth slowing and capital flowing out of the nation, the central bank has reversed course to lower the requirement so banks can boost lending and help cushion the slowdown.

“Chinese officials are stepping on the gas,” said Frederic Neumann, co-head of Asia Economics Research at HSBC Holdings Plc in Hong Kong. “The joint move on interest rates and the reserve-requirement ratio shows that Beijing is determined to get the car out of the mud and get things moving again.”

Bloomberg

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade long experience in the global financial market.

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Oil Prices Decline on Rising COVID-19 Cases

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Global Oil Prices Dipped on Friday as New COVID-19 Cases Jump Globally

Global oil prices decline on Friday as the number of confirmed COVID-19 cases surged across the world.

Brent crude oil, against which Nigerian oil is priced, declined from $43.47 per barrel it traded on Thursday during the Asian trading session to $41.60 per barrel on Friday at around 11:39 am Nigerian time.

global Oil prices While the price of US West Texas Intermediate (WTI) crude oil dipped from $40.97 per barrel it traded on Thursday to $38.78 on Friday.

Oil traders and investors are worried that the rising number of COVID-19 new cases would disrupt demand for the commodity and force refineries to shut down once again.

“I do not suspect many oil traders will be looking to place significant bids in the market today, suggesting prices may continue to wallow into the weekend,” said Stephen Innes, chief global markets strategist at AxiCorp.

Despite efforts by both OPEC plus and other top oil producers to halt falling oil prices and reduce global oil glut, the lack of a cure for COVID-19 remained global concerns.

As previously stated on this platform, until a cure is found the world would have to find a way to either work through COVID-19 or shut down activities completely.

This is coming a day after the Federal Government of Nigeria announced that it was putting school resumption plan on hold following the latest COVID-19 report that shows Nigeria’s confirmed cases crossed 30,000 on Wednesday.

In the United States, more than 60,000 new COVID-19 cases were reported on Thursday, forcing lawmakers to start contemplating the second phase of COVID-19 lockdown.

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We Are Losing N13.9bn Monthly Because FG Caps Tariff – Discos

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Discos Says it is Losing N14bn Monthly Because of NERC Capped Tariff

The Nigerian power Distribution Companies (Discos) have said they a losing N13.9 billion in revenue every month because the Nigerian Electricity Regulatory Commission, limited how much they can charge for consumption.

Ernest Mupwaya, the Managing Director, Abuja Electricity Distribution Company, made the statement during a presentation on behalf of the Discos to the House of Representatives Committee on Power.

The statement was after the Discos demanded realistic indices before the implementation of the proposed service reflective tariff, which was supposed to be implemented on July 1.

Mupwaya said there were some outstanding requirements before the service reflective tariff could be implemented.

“One of them is the removal of estimated billing caps. The financial impact of the Capping Order is an average loss of N13.9bn monthly, thereby, undermining or jeopardising the minimum remittance requirement,” Mupwaya stated.

The July 1 service tariff implementation was halted by members of the National Assembly, who prevailed on the Discos to shelve the date to the first quarter of 2021 due to the current economic challenges in Nigeria.

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Gbajabiamila Says Nigeria Can’t Compete in AfCFTA With Weak Industries

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Nigeria Must Ramp up Industrialisation to Prevent Dumping by Other Nations

The Speaker of the House of Representatives, Femi Gbajabiamila, has said the nation can not compete effectively in the African Continental Free Trade Area (AfCFTA) with weak industrialisation and manufacturing activities.

Gbajabiamila disclosed this while receiving Adesoji Adesugba, the newly appointed Managing Director of the Nigeria Export Processing Zones Authority.

The details of the visit were made public on Thursday in a statement titled, “AFCFTA: House Speaker tasks Nigeria on industrialisation through free trade zones.”

Gbajabiamila was quoted as saying “We must act proactively so that we don’t become a dumping ground for other African nations.

“Our best option in this circumstance is to immediately set machinery in motion to ensure the effective functioning and flourishing of our export processing zones.

“We must remove all bottlenecks and perfect all stumbling blocks. We will then be fully prepared for AfCFTA and also generate massive jobs for our unemployed youths and enhance our foreign earnings.”

He added that the nation must as a matter of national emergency ramp up industrialisation through free trade zones and other effective means to compete with South Africa, Africa’s most industrialised economy and other African nations.

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