- Commodity Producers Rise With Metals; Dollar Gains
European shares rose as commodity producers rebounded with metals prices. Chinese equities led Asian markets lower, while the pound was steady after rallying Tuesday on news of a U.K. election.
The Stoxx Europe 600 Index climbed after the biggest one-day loss since November. Glencore Plc led gains among materials companies as zinc, aluminum and iron ore rose after sharp drops earlier in the week. Equity markets in China slipped, with the benchmark index in Shanghai tumbling for a fourth day. The pound remained near its strongest level this year ahead of a parliamentary vote for an election on June 8. The yield on Japan’s benchmark 10-year government note touched zero, while the Australian 10-year yield fell to its lowest since November.
The rebound in metals somewhat overshadowed geopolitical uncertainty and weaker-than-expected corporate earnings from heavyweights IBM and Goldman Sachs Group Inc. A vote in Britain will be preceded by the French presidential election, while a standoff over North Korea’s nuclear weapons program drags on.
The odds of the Federal Reserve raising interest rates in June have fallen to about 44 percent from more than 60 percent earlier in April as investors question the strength of the U.S. economy. They are also waiting for President Donald Trump’s proposed tax cuts and infrastructure plans to materialize.
Here are the main moves in markets:
- The Stoxx Europe 600 increased 0.1 percent as of 8:28 a.m. in London, after dropping 1.1 percent on Tuesday.
- The Shanghai Composite Index fell 0.8 percent, taking its four-day loss to 3.2 percent. It is at its lowest since Feb. 8. The main Shenzhen market was also down a fourth day.
- The Hang Seng Index slid 0.4 percent and the Hang Seng China Enterprises Index dropped below the 10,000 level for the first time in two months. The MSCI Asia Pacific Index retreated 0.4 percent.
- Japan’s Topix index was little changed, while Australia’s S&P/ASX 200 Index lost 0.6 percent and South Korea’s Kospi index fell 0.5 percent.
- Futures on the S&P 500 rose 0.2 percent after the underlying gauge slipped 0.3 percent Tuesday. IBM slumped in after-hours U.S. trading after its 20th consecutive quarterly sales decline.
- The yen slipped 0.4 percent to 108.84 per dollar after gaining 0.5 percent Tuesday. The Bloomberg Dollar Spot Index rose 0.2 percent following a two-day decline.
- The pound dropped less than 0.1 percent to $1.2836 after its 2.2 percent surge Tuesday. The euro slipped less than 0.1 percent.
- The Australian dollar slid 0.7 percent following its 0.4 percent drop the previous day.
- The yield on 10-year Treasuries rose three basis point to 2.20 percent after an eight-basis-point plunge Tuesday.
- The yield on similar-dated Japanese bonds briefly fell to zero for the first time since November before rising back to 0.004 percent. The yield on Australian notes due in a decade slid three basis points to 2.46 percent.
- Iron ore put the brakes on its decline, rising 2 percent after losing 8 percent in the first two days of the week.
- London Metal Exchange copper for delivery in three months rebounded, advancing 1.3 percent. Aluminum, zinc, lead and nickel all rose.
- Gold declined 0.4 percent to $1,284.24 an ounce after closing at the highest since November in the previous session.
- West Texas Intermediate crude oil was little changed at $52.39 a barrel, after two days of losses.
Foreign-Currency Shortages to Render Nigerian Banks Vulnerable -Moody’s
Forex Scarcity Renders Nigerian Banks Vulnerable
Nigeria’s banks to experience acute funding challenges as the drop in foreign currency deposits hit a record-low following COVID-19 pandemic disruption, stated Moody’s.
In a recent report titled ‘Renewed foreign-currency shortages highlight vulnerability for Nigerian banks‘ published by Moody’s Investors Service, a bond credit rating business of Moody’s Corporation, the drop in dollar deposits amid low oil revenue, volatile foreign investment and declined remittances from abroad due to COVID-19 pandemic are threatening to renew forex liquidity crisis of 2016-2017 on Nigerian banks.
“Lower dollar inflows at a time when foreign currency borrowing will likely be more expensive for Nigerian banks will strain their foreign currency funding, despite substantial improvements compared to 2016,” said Peter Mushangwe, Analyst at Moody’s.
“Our moderate scenario where foreign-currency deposits decline by 20%, while loans remain constant, would increase rated banks’ funding gap to NGN1.5 trillion [$3.8 billion], and to NGN1.9 trillion [$5.0 billion] under our severe-case scenario of 35% foreign-currency deposit contraction, creating acute funding challenges.”
According to Moody’s, oil and gas exports account for about 90 percent of Nigeria’s foreign currency revenue. However, with crude oil now trading at around $40 per barrel, far below its average of $65 per barrel in 2019 and $72 per barrel in 2018, Nigeria’s banks are expected to struggle to meet foreign-currency withdrawals in the next 12 to 18 months.
Moody’s said its rated “banks reduced their foreign currency funding gap to a combined NGN354 billion ($984 million) in 2019 from NGN1.436 trillion ($5.5 billion) in 2016. The ratio of foreign-currency loans to foreign-currency deposits at Moody’s rated banks dropped to 106% at the end of 2019 from 135% in 2016 as banks cut back on dollar loans while building up their dollar deposits.
“The smaller funding gap will enable the banks to better withstand unforeseen deposit withdrawals and likely higher borrowing costs. However, in the event of foreign currency deposits contracting by 20% or more, banks’ funding gaps will be significant.”
This further explained why the Nigerian Naira is trading at a record low of N461 against the United States dollar on the black market in recent weeks.
Naira Records Marginal Gain Against the US Dollar on Thursday
Naira Gains Marginally Against the US Dollar On Thursday
The Nigerian Naira gained slightly against the United States dollar both on the black market and Investors and Exporters’ Forex Window on Thursday
On the black market, the local currency gained N1 from the N462 it exchanged against the US dollar on Wednesday to close at N461 on Thursday.
This slight improvement continues against the Euro single currency on Thursday as the Naira gained N2 from N505 it traded on Wednesday to N502 on Thursday.
However, the Nigerian Naira was unchanged against the British Pound. The local currency traded flat at N560 against the British Pound.
On the Investors and Exporters’ Forex Window, the Naira gained 0.13 percent or 50 kobo against the US dollar to trade at N386. This was after trading as low as N389.75 during the trading hours of Thursday.
Activity level rose by almost 2000 percent from $10.37 million turnover recorded on Wednesday to $204.90 million on Thursday.
The Nigerian Naira remained under pressure as dollar scarcity continues to hurt its value and sentiment.
Also, the lack of clear policy direction is one of the reasons Nigeria continues to struggle with needed capital importation and huge forex demand from investors looking to repatriate their funds.
The Federal Government recently raised fuel pumping price at a time when most nations are reducing costs to ease economic burden on their citizens.
This move already rejected by the Nigeria Labour Congress (NLC) on Thursday highlighted the nation’s lack of economic direction despite numerous announcements by the central bank and federal government to mitigate negative impacts of COVID-19 on the economy.
Naira Exchanges at Record-low Against US Dollar on Black Market
Naira Trades at Record-low of N462 Against US Dollar
The Nigerian Naira plunged to a record low of N462 against the United States dollar on Wednesday on the black market as scarcity persists.
The local currency lost N2 against the US dollar from the N460 it traded on Tuesday to N462 on the black market on Wednesday. While against the British Pound, the Naira remained unchanged at N560. The same rate it exchanged on Tuesday.
Similarly, the Nigerian Naira remained flat at N505 against the Euro single currency on the black market.
On the Investors and Exporters Forex Window, the local currency remained unchanged at N386.50 to a US dollar, the same rate it was exchanged on Tuesday.
Activity on the platform dropped on Wednesday as daily turnover stood at $10.37 million, below the $14.37 that was exchanged on Tuesday.
Scarcity across key foreign exchange segments continues to hurt the nation’s currency and economic outlook due to the inability of investors and businesses to access foreign exchange needed to import raw materials into Africa’s largest economy.
This was evident in the broad-based decline recorded in the manufacturing sector in the month of June.
Also, the unconfirmed report that the Federal Government is looking to converge the nation’s exchange rate due to the pressure from the International Monetary Fund (IMF) added to Naira pressure as speculators and hoarders now have reason to remain in business.
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