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What’s happening: Bears took control of the crude oil market on Wednesday, even before the US Federal Reserve announced its interest rate decision.
What happened: Crude prices continued to decline after the US Fed took its benchmark interest rate to the highest level in 16 years.
Weakness in the US dollar also failed to lend support to crude prices on Wednesday.
Why it matters: The US central bank concluded its 2-day meeting on Wednesday and announced an increase in the fed funds rate by 25 basis points to 5.00%-5.25%. The decision to hike rates for the tenth time in a little over a year was unanimous.
Although the latest move by the US Fed was widely expected, markets had been on tenterhooks around the impact of another rate increase on the troubled banking sector. Even signs that policymakers may now pause their rate hike streak did not help improve bearish sentiment.
Concerns around the economic growth prospects of the US, the world’s largest oil consumer, exerted pressure on crude prices.
A higher-than-expected drawdown of US crude inventories did not ease speculations of declining energy demand. The Energy Information Administration (EIA) said on Wednesday that US crude stockpiles fell by 1.28 million barrels in the week ending April 28, higher than market expectations of a decline of 1.1 million barrels.
The US dollar index, which measures the greenback’s performance versus a basket of major currencies, fell 0.24% to close at 101.10 on Wednesday. Weakness in the US dollar typically supports oil prices, as it boosts demand for the commodity by making it cheaper for foreign currency holders. However, this too failed to lend support.
WTI crude prices hovered around the key support level of $70 per barrel, before spiralling to as low as $67.70 per barrel during Wednesday’s session. WTI crude oil for June delivery fell 4.27% to settle at $68.60, hitting a five-week low.
What to watch: Investors await the European Central Bank’s interest rate decision, scheduled to be announced later today. Speculations were leaning towards a hike of 50 basis points. However, markets now widely expect the ECB to hike its benchmark rate by 25 basis points, given the unexpected easing of the Eurozone’s inflation rate in April.
Context: Shares of Eli Lilly climbed after the company announced positive clinical trial results for one of its major candidates.
Details: Eli Lilly announced on Wednesday that its experimental drug, donanemab, slowed the progression of Alzheimer’s disease.
The latest Phase III study of early-stage Alzheimer’s patients showed that those who received donanemab demonstrated a 35% slower cognitive and functional decline than those who received a placebo.
The treatment, which is administered intravenously and targets the substance that forms plaque in the brain, slowed the decline in memory, thinking and the ability to perform daily activities.
The positive data could support the regulatory approval and eventual commercial sale of Eli Lilly’s treatment. The pharma company said on Wednesday that it plans to apply to the US FDA (Food and Drug Administration) later this quarter.
Shares of Eli Lilly surged 6.68% to close at $431.19 on Wednesday. The stock inched higher in the after-hours trading session to $431.56.
What to watch: Investors will monitor Eli Lilly’s FDA filing for donanemab and any comments from the agency regarding this new Alzheimer’s treatment. It could take the FDA till late 2023 or 2024 to provide its decision.
Other Markets: US indices closed lower on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.80%, 0.70% and 0.46%, respectively.
Ukrainian President Volodymyr Zelenskyy denied planning the drone attack on Russian President Vladimir Putin’s residence in Moscow on Tuesday night. The safe-haven US dollar index rose slightly this morning.
Hong Kong’s S&P Global PMI fell to 52.4 in April, from 53.5 in the previous month. Despite this, the figure represented the fourth consecutive month of growth in private sector activity, lending support to the HKD/USD forex pair.
Australia’s trade surplus widened to A$15.27 billion in March, from A$14.15 billion in the previous month. The figure also came in ahead of market expectations of a surplus of A$12.65 billion, which sent the AUD/USD pair higher in forex trading this morning.
Singapore’s S&P Global PMI improved to 55.3 in April, from 52.6 in the prior month. This being the highest reading since November 2022 lent some support to the SGD/USD forex pair.
China’s Caixin General Manufacturing PMI fell to 49.5 in April, from 50 in the previous month. The figure marked a contraction in factory activity and significantly missed market expectations of 50.3. The news sent the CNY/USD slightly lower in forex trading this morning.
Spain’s HCOB Services PMI, Italy’s HCOB Services PMI, France’s HCOB Services PMI, Germany’s HCOB Services PMI, Eurozone’s HCOB Services PMI, UK’s consumer credit and S&P Global/CIPS Services PMI, Mexico’s consumer confidence and unemployment rate, Canada’s balance of trade, and US initial jobless claims.
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