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Nigeria’s Sticky Inflation Threatens to Curb Rate-Cut Hopes

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  • Nigeria’s Sticky Inflation Threatens to Curb Rate-Cut Hopes

Nigeria’s long-awaited interest rate-cutting cycle risks being short-lived, if it starts at all.

Governor Godwin Emefiele said last month the Central Bank of Nigeria may reduce its benchmark from a record-high 14 percent before July if inflation drops closer to single digits. But with fuel costs surging and government spending swelling before next year’s election, he may struggle to reach that threshold at a time when the pace of price growth is still just over 15 percent.

“With inflation remaining sticky, it is unlikely that the CBN would want to cut rates so soon,” Gaimin Nonyane, the London-based economic-research head at Ecobank Transnational Inc., said by email.

Complicating the picture is the Senate’s refusal to approve President Muhammadu Buhari’s nominees to the Monetary Policy Committee, which means the panel lacks a quorum to hold meetings to formally set rates, further delaying any hope of cuts. The MPC didn’t sit in January, and it’s not clear if the March 20 decision will be made.

The inflation rate in Africa’s most-populous nation rose to 15.1 percent in January from a year earlier and has exceeded the target range of 6 percent to 9 percent for 2 1/2 years. The statistics agency is due to release data for February on March 14.

Africa’s largest oil producer imports almost all its refined-fuel requirements because local capacity can’t match demand. While higher crude prices have increased Nigeria’s revenue, they have also raised the cost of processed products, with the average gasoline price surging 27 percent in January from a year earlier. The resultant fuel shortages prompted retailers to boost pump prices above the official cap of 145 naira ($0.40) a liter, adding to inflationary pressures.

“Unless fuel pricing is resolved, bouts of fuel shortages could keep prices sticky, feeding into other items,” said Razia Khan, head of macroeconomic research at Standard Chartered Bank Plc in London.

Price growth might fall further before rising again in the second half because of election spending, Statistician-General Yemi Kale said Feb. 16. Buhari hasn’t declared if he will seek re-election in the planned February 2019 vote, but attempts to appease voters may see spending increases.

The Nigerian National Petroleum Corp. said Monday that a 70 percent increase in gasoline consumption was costing it 774 million naira ($2.1 million) daily. The increase was due to a “proliferation of fuel stations” and smuggling to neighboring countries, the state-run company said in a statement.

Capital investments will continue as planned, and that will help the ruling All Progressives Congress win votes, Finance Minister Kemi Adeosun said in a Jan. 23 interview. There will be no fiscal indiscipline, and no inflation attributed to such spending, she said.

Lawmakers are debating Buhari’s proposal to increase spending plans this year by 16 percent to 8.6 trillion naira, with a focus on increasing investment in roads, rail and power.

The International Monetary Fund forecast gross domestic product expansion at 2.1 percent this year, strengthening the recovery in an economy that contracted for the first time in a quarter century in 2016.

“With oil prices and production outlook appearing positive and with external reserves strengthening, the CBN has greater scope to than a year ago to reduce the policy rate,” Ecobank’s Nonyane said. “However, this would depend on how fast consumer prices fall.”

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 experience in the global financial market.

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Silver Joins Haven Assets That Pullback on Dollar Strength

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Silver Pulls Back on Dollar Strength

Silver pulled back on Friday after Donald Trump-led administration announced it was working on a new stimulus package to ease economic burden of the American people.

The United States dollar gained as investors jumped on it to hedge against US-China trade tensions.

Silver that has risen to almost eight years high of $29.84 on Thursday pulled back after the US government announced its plan on a new stimulus package.

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The haven asset, like Gold, pulled back to $27.97 on Friday during the New York trading session.

“While there are no early chart clues to suggest the gold and silver markets are close to major tops, both are now getting short-term overbought, technically, and are due for downside corrections in the uptrends,” Kitco Metals senior analyst Jim Wyckoff said in a note.

“And remember that with the higher volatility and bigger daily price gains seen at present, there will also be bigger downside corrections when they come.”

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Gold Pullback on Dollar Strength on Friday

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Gold Pauses its Bullish  Runon Dollar Strength

Gold pulled back from its record rally on Friday after the US dollar received a boost from the new stimulus.

The world’s safe-haven asset pulled back from $2074 per ounce it traded on Thursday to $2030 on Friday during the New York trading session.

XAUUSDWeekly“We’ll see some pullback (in gold) from these levels with USD bottoming for a while and maybe even see some strength in the USD in the near term, which will reverse these gains but not entirely,” said Spencer Campbell, director at SE Asia Consulting Pte Ltd. “People will be looking to re-enter the market on any pullbacks in precious metals as the medium to longer term views are significantly higher.”

Gold rose to an all-time high of $2074 on Thursday after rising over 35 percent on the back of the COVID-19 pandemic. However, economic uncertainties due to the second wave of COVID-19 continues to support gold rally and expected to continue until a concrete solution or vaccine is discovered.

“There are mixed signals that the economy is recovering and some of the signs of recovery are relatively superficial as they show aggregate figures and not how medium and small enterprises continue to suffer,” said Jeffrey Christian, managing partner of CPM Group.

“We have a very long way to go before we see a proper economic recovery.”

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Finances of International Oil Companies Suffered in the Second Quarter

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Finances of IOCs Plunged Amid COVID-19 Pandemic in the Second Quarter

Global leading oil companies suffered substantial losses in the second quarter, according to their various financial statements published in recent weeks.

On Thursday, Royal Dutch Shell posted $18.9 billion loss in the second quarter of 2020, far below the profit of $3.5 billion posted in the same quarter of 2019.

This, the company attributed to the plunge in global oil prices in 2020 due to the COVID-19 pandemic. Shell warned that oil demand remained uncertain, adding that it had cut its exploration plans for this year from about 77 wells to just 22.

This was after the price of Brent crude oil plunged to $15 per barrel during the peak of COVID-19 pandemic while the price of West Texas Intermediate crude oil dipped to -$37 per barrel, the lowest on record.

Also, the company said it has reduced its capital expenditure for the year from the initial $25 billion to $20 billion amid a plunge in revenue and demand for the commodity.

Similarly, ExxonMobil reported a $1.1 billion loss, its biggest decline on record. The oil company also announced it would be lowing spending by 30 percent in 2020 to about $23 billion.

Among the various oil companies posting negative financial statements for the quarter was Chevron Corporation, the company reported $8.3 billion decline in the second quarter of the year. The lowest ever posted by the oil giant in almost three decades.

Chevron, therefore, warned that the havoc caused by COVID-19 pandemic in the energy sector might continue to weigh on earnings.

“While demand and commodity prices have shown signs of recovery, they are not back to pre-pandemic levels, and financial results may continue to be depressed into the third quarter of 2020,” Chevron’s Chairman and Chief Executive Officer, Michael Wirth, said.

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