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Baker Hughes shares decline amid weak Q4 print

 

Tuesday, January 24, 2023

The news shaping the markets today

Russia’s foreign intelligence service said Ukraine is storing Western-supplied arms at its nuclear power plants. US crude oil futures rose this morning.


Japan’s services PMI rose to 52.4 in January, versus a final reading of 51.1 in the previous month, lending support to the JPY/USD forex pair.


Australia’s NAB business confidence index added 3 points to reach a reading of -1 in December, sending the AUD/USD pair higher in forex trading this morning.


New Zealand’s performance of services index declined to 52.1 in December, versus 53.8 a month ago. However, the services index remaining in the expansion zone lent support to the NZD/USD forex pair.


Eurozone’s consumer confidence indicator increased by 1.1 points to -20.9 in January, recording the highest reading since February 2022, which sent the EUR/USD pair slightly higher in forex trading this morning.

 

What’s happening: Shares of Baker Hughes fell on Monday, after the company released results for its fourth quarter.

What happened: The oilfield services company reported disappointing quarterly results for the fourth quarter.

However, the company issued a bullish forecast for one of its key metrics for fiscal 2023.

How were the results: The Houston, Texas-based company reported growth in sales for the three months ended December 31.

  • Sales rose 8% year-over-year to $5.91 billion but missed the consensus estimates of $6.06 billion.
  • Adjusted net income came in at $381 million, or 38 cents per share, falling short of the Wall Street expectations of 40 cents per share.

Why it matters: Crude oil started the year on a positive note, after China relaxed its strict covid-19 restrictions. Increase in mobility in the country is expected to result in a surplus of 1 million bpd (barrels per day) in the current quarter and a deficit of 2.4 million bpd by yearend for the global oil market, according to the International Energy Agency.

This is expected to exert pressure on the OPEC (Organization of the Petroleum Exporting Countries) to increase production and may result in higher demand for services from Baker Hughes and its peers.

Baker Hughes announced a restructuring of its business into two segments, and recorded restructuring and impairment charges worth $682 million in 2022.

Sales at the company’s Oilfield Services & Equipment business grew 12% year-over-year to $3.6 billion, while sales in its Industrial & Energy Technology division rose 1% to $2.3 billion.

Orders for the quarter surged 20% year-over-year to $8 billion, with order momentum being especially strong at its Industrial and Energy Technology group.

The company’s operating income grew 15% to $663 million in the quarter, while operating margins came in at 11.2%. Adjusted EBITDA grew 12% year-over-year to $947 million, outpacing market expectations of about $925 million.

“Global spare capacity for oil and gas has deteriorated and will likely require years of investment growth to meet forecasted future demand,” Baker Hughes Chairman and CEO Lorenzo Simonelli said during the earnings call.

Management projected revenues of $5.3-$5.7 billion for the first quarter, broadly in-line with expectations. They also guided to fiscal 2023 revenues of $24-$26 billion, higher than analyst projections of $21.34 billion.

How shares responded: Shares of Baker Hughes fell 1.5% to close at $30.59 on Monday, following the release of quarterly results. The stock has gained around 25% over the past six months.

What to watch: Investors will continue monitoring the situation in China. Markets will also keep an eye on economic growth projections for the global economy.

The markets today

Gold will be in focus after settling higher on Monday

Context: Gold futures rose on Monday to settle at another highest level since April last year.

Details: Gold traded lower for most of the session on Monday, with strength in the US dollar and a rise in US Treasury yields.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained more than 0.1% to reach 102.14 on Monday, after recording losses last week. The rise in the US dollar generally makes gold more expensive for foreign buyers.

However, the yellow metal moved higher as the session progressed, with optimism around an increase in demand following the Chinese government’s relaxation of covid-19 restrictions.

Investors also continued to assess monetary policy decisions by several major central banks around the world. Markers expect the US Federal Reserve to increase rates by 25 basis points at its upcoming meeting. The ECB has also signalled plans to hike interest rates to control inflation.

Gold for February delivery rose 40 cents, or 0.02%, to close at $1,928.60 per ounce on Comex on Monday, after falling as low as $1,912.50 earlier in the session. The safe-haven metal closed at its strongest level since April 22 for a third straight session.

However, silver for March delivery fell by 38 cents, or 1.6%, to settle at $23.554 per ounce on Monday. Copper for March added 0.1% to $4.2565 per pound, while April platinum rose by 0.8% to $1,056.30 per ounce and March palladium settled at $1,701.40 per ounce, down 1.3%.

What are expectations: Investors await data on the US GDP, due to be released this Thursday, which is expected to significantly impact the yellow metal’s price. The US economy, which expanded an annualised 3.2% in the third quarter, is expected to grow by 2.7% in the fourth quarter.

Markets also await economic data on manufacturing PMI, services PMI, composite PMI from the US today.

Other Markets: European indices closed higher on Monday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 up by 0.18%, 0.46%, 0.52% and 0.52%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY  – 130.27 and 130.38 Negative
USD/CAD – 1.3356 and 1.3361 Negative
Silver – 23.642 and 23.692 Positive
Palladium – 1713.38 and 1716.60 Positive
Nasdaq 100 – 11841.93 and 11889.61 Negative

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0875, 0.01%) Dow ($33,726, -0.01%) Brent ($88.19, 0.1%)
GBP/USD (1.2380, 0.01%) S&P500 ($4,036, -0.02%) WTI ($81.73, 0.1%)
USD/JPY (130.42, -0.19%) Nasdaq ($11,927, -0.05%) Gold ($1,935, 0.3%)

What else to watch today

South Africa’s composite leading business cycle indicator and SACCI business confidence index, UK’s public sector net borrowing, CBI’s quarterly gauge of manufacturing optimism, CBI industrial trends orders, manufacturing PMI, services PMI and composite PMI, France’s manufacturing climate indicator, business climate indicator, manufacturing PMI, services PMI and composite PMI, Germany’s manufacturing PMI, services PMI and composite PMI, Eurozone’s manufacturing PMI, services PMI and composite PMI, Brazil’s inflation rate, Mexico’s consumer prices, US Redbook index, Richmond Fed manufacturing index and API crude oil stock change, as well as Argentina’s economic activity estimator.


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