- ‘Suez’ Problem in Oil Continues
- Fed to Remove a Rule that Handcuffed the Banks from Raising Dividends and Buying Back Shares
- Swiss Central Bank Kept the Interest Rate Stable
‘Suez’ Problem in Oil Continues
On the Suez Canal yesterday morning, Evergreen’s container ship went off course and crashed into the shore. As the boat closed the passageway by squeezing transversely in the narrow channel, the canal’s sea traffic had stopped entirely. It was learned that the container ship, 400 meters long, 59 meters wide, and weighing 224 thousand tons, was sailing from China to the Netherlands.
Oil prices soared as investors focused on the massive container ship stranded in the Suez Canal in Egypt, one of the world’s most important waterways to affect the market. Efforts are underway for the giant container ship stranded in the Suez Canal to move again. According to calculations, the closure of transportation in both directions could halt daily ship traffic of approximately $9.6 billion.
Futures rose 1.1% on Friday in the New York market after a 4.3% drop in the previous session. The stranded ship closing the Suez Canal caused a jam in the canal traffic.
With no signs that the ship will withdraw on the third day, the owners consider touring around Africa as an alternative plan.
There is enormous volatility in the markets right now. The delay in the Suez Canal opening may support the needs a little, but the increasing coronavirus cases in Europe and the USA will limit the upward movement. As oil prices prepare to close the third consecutive week with losses, this will be the longest losing streak after April. While coronavirus cases are on the rise in the USA, some European countries have extended their quarantine measures.
The ship’s closure of the canal is thought to have a limited impact on the markets, but it is estimated that oil trade from the Middle East to Europe will decrease. According to calculations, the closure of transportation in both directions could halt daily ship traffic of approximately $9.6 billion.
According to Lloyd’s List’s assessment, the value of traffic going to the West direction reaches approximately $5.1 billion per day, and the importance of eastward traffic comes roughly $4.5 billion.
According to Bloomberg, approximately 185 ships are waiting for the passage after the boat has grounded. According to Lloyd’s, this figure is 165.
Brent for May settlement is trading at around $62.51 on the London ICE Futures Europe market, up 0.95% after falling 3.8% in the previous session.
West Texas Oil for May futures rose 66 cents to around $59.22 a barrel in the Nymex market.
Fed to Remove a Rule that Handcuffed the Banks from Raising Dividends and Buying Back Shares
The US Federal Reserve (Fed) announced that it would lift the dividend payment and share buyback limits for most banks after June 30.
Fed Vice President Randal Quarles said that the banking system continues to be a source of resistance and that banks that pass stress tests will return to the usual framework, while banks below the minimum requirements will be subject to restrictions until September 30.
Stress tests “evaluate the resilience of large banks by estimating their losses, revenue and capital levels under hypothetical scenarios over nine future quarters,” according to the Fed’s announcement. The Fed said the results of this year’s test would be released on July 1.
Chicago Fed President Charles Evans explained that inflation was “lower than he wanted” and pointed out that inflation should rise to the target of 2%.
“I don’t worry if inflation rises to 2.5-3%, but an inflation going from 3 to 4% could be a problem,” Evans said.
Richmond Fed Chairman Thomas Barkin also stated that he expects a rapid increase in inflation but that normal levels will return in 2022.
“Supply disruptions, strong demand means inflation will increase this year, but it will return to 2% over time as most businesses are unlikely to change their price approach,” Barkin said.
San Francisco Fed Chairman Mary Daly pointed out that the US employment market is “definitely still in a difficult situation,” and employment is still 10 thousand lower than before Covid-19.
Recalling that economic growth is expected to accelerate this year and unemployment is expected to decrease, Daly emphasized that every American is provided with jobs, and people should be sure that they return to their lives.
Atlanta Fed President Raphael Bostic said he expected a massive increase in inflation soon, but he did not expect it to have a severe long-term impact.
Speaking at the Boston Economic Club, Bostic said, “I am not worried about inflation trends, considering how the pandemic has caused turmoil and damage to certain prices in the measurement of inflation,” he said.
Earlier this week, Treasury Secretary Janet Yellen signaled her support for lifting banks’ restrictions.
“I have been opposed earlier when we were very concerned about the situation the banks would face about stock buybacks,” Yellen said in a Senate testimony on Wednesday. “But financial institutions look healthier now, and I believe they should have some ability to abiding by the rules to make returns to shareholders.”
Swiss Central Bank Kept the Interest Rate Stable
The Swiss National Bank left interest rates unchanged at -0.75% as expected. However, the monetary policy statement accompanying the decision and Bank Governor Thomas Jordan’s comments caused a decline in the franc’s value against most of the major currencies, especially against the US dollar. USDCHF rose to 0.9375, its highest in more than two weeks.
According to the statement made after the Swiss Central Bank interest meeting, the benchmark interest rate remained negative 0.75%. The market expected that there would be no change in interest rates.
The SNB stated that it remained committed to currency interventions, but less forcefully than it did in December when it noted that it was ready to intervene “more strongly” in the foreign exchange markets. It only said on Thursday that it would interfere “as necessary.”
The bank, which reduced the interest rates in January 2015, did not change the interest rates in the last 22 meetings.
The country’s inflation rate was negative at 0.5 %, with core inflation at 0.3 %. In response to increasing oil prices and the Swiss franc’s weakening, the Swiss National Bank lifted its inflation forecast at its meeting on Thursday morning.
The increased spending inflated the balance sheet of the SNB to nearly 1 trillion francs, which is much larger than the size of the entire Swiss economy.
Inflation is expected to increase by 0.2% in 2021, 0.4 % in 2022, and 0.5 % in 2023. For the year 2021, the bank kept its GDP growth forecast at 2.5% to 3%. However, GDP will likely fall in the first quarter of 2021, assuming that growth momentum improves in the second half of the year.
Although the economy faces challenges, the bank stated that this would not abandon its expansionary monetary policy for as long as possible.
Despite improving its inflation outlook, it will be difficult to make any monetary policy changes, preferring to follow the US Federal Reserve and the European Central Bank’s lead.