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Crude oil falls amid demand concerns, Fed decision

 

Thursday, November 02, 2023

Today’s headlines

What’s happening: Crude oil prices settled lower on Wednesday, following the Federal Reserve’s interest rate decision.

What happened: Oil prices extended their losses into a third straight session on Wednesday, amid concerns around a slowdown in the global economy.

Data showing that US crude supplies had increased for a second week in a row also exerted pressure on oil prices.

Why it matters: WTI crude oil closed Tuesday’s session at its weakest level since August 28 and recording a 10.8% decline for October. Brent, the global benchmark, also fell 8.3% last month, after notching gains for four consecutive months.

On Wednesday, the EIA (Energy Information Administration) said crude oil inventories in the US had increased by 0.774 million barrels during the week ending October 27, rising for the second week in a row. The figure was also significantly higher than market expectation of around 870,000 barrels.

The EIA data also showed gasoline supply increasing by 100,000 barrels, while distillate stockpiles contracting by 800,000 barrels last week. Late Tuesday, the API (American Petroleum Institute) had also reported a gain of 1.3 million barrels in crude inventories last week.

Investors have been concerned about the ongoing geopolitical unrest and the weakness in global demand for energy.

Crude oil prices fell toward their session lows following the release of the US Federal Reserve’s decision. Although the US central bank held its federal funds rate within the range of 5.25% to 5.5%, the Fed chief Jerome Powell delivered mixed signals regarding further interest rate hikes.

WTI crude for December delivery declined 58 cents, or 0.7%, to close at $80.44 per barrel on the NYEX (New York Mercantile Exchange). January Brent crude fell by 0.5% to settle at $84.63 per barrel on ICE Futures Europe.

In other energy trading, December gasoline declined 1.4% to $2.19 a gallon, while December heating oil climbed 2.8% to $2.96 a gallon on Wednesday. Natural gas for December delivery fell 2.3% to $3.49 per million British thermal units, after gaining around 6.7% in the prior session.

What to watch: Investors will watch the overall state of the global economy, which is expected to impact oil demand ahead.

The release of the EIA’s data on natural gas stockpiles will also remain in focus today. US natural gas supplies, which surged by 74 billion cubic feet during the week ended October 20, are expected to increase by 80 billion cubic feet in the recent week.

The markets today

Qualcomm will be in focus today following the release of its fourth-quarter results

Context: Shares of Qualcomm gained in the extended trading session on Wednesday, after the company posted upbeat fourth-quarter results and issued a strong first-quarter forecast.

Details: The global smartphone market is expected to rebound soon, driven by strength in the emerging markets. Global smartphone shipments declined by just 0.1% during the quarter ended September, after recording big contractions for several quarters.

Customers, especially in the Chinese markets, have been refraining from upgrading their phones and keeping their existing phone models for longer than they had in the past, which has been weighing on the demand for Qualcomm’s chips.

The company expects the sales of smartphones in China to surge 35% in the current quarter, compared to the prior three months. A significant recovery in sales is expected to provide a boost to its overall revenue.

Qualcomm reported a 24% year-over-year decline in its fourth-quarter revenues to $8.67 billion, beating the consensus estimates of $8.51 billion. Earnings came in at $2.02 per share, topping the Wall Street expectations of $1.91 per share.

The QCT segment’s revenues contracted by 26% year-over-year to $7.37 billion, while the QTL segment’s revenues declined 12% year-over-year to $1.26 billion.

“As we enter fiscal 2024, we are pleased with our roadmap and product execution, which position us well across our businesses,” CEO Cristiano Amon said during the earnings call. “Our recent Snapdragon Summit announcements underscore our technology leadership, establishing Qualcomm as a leader in on-device generative AI and mobile computing performance,” she added.

Management guided to revenues of $9.1 billion to $9.9 billion and earnings in the range of $2.25 to $2.45 per share for the first quarter.

How shares responded: Qualcomm’s shares gained 3.8% to $115.14 in the extended trading session, following the release of quarterly results on Thursday. The stock had lost around 5% over the past six months.

What to watch: Investors will watch the rebound in the smartphone market, which is expected to significantly impact the company’s overall results ahead. Markets will also monitor fresh threats from Huawei Technologies, as the company announced the resumption of the production of its own smartphone chips.

Other Markets: European indices closed higher on Wednesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index up by 0.28%, 0.76%, 0.68% and 0.67%, respectively.

The news shaping the markets

France’s financial prosecutor charged Russian tycoon Alexei Kuzmichev on suspicion of tax fraud and violating EU sanctions. Despite ongoing geopolitical tensions, the safe-haven US dollar index declined slightly this morning.


South Korea’s consumer price index rose by 3.8% year-over-year in October, topping market estimates of a 3.6% gain. This also being the third straight month of gains lent support to the KRW/USD forex pair.


The Hong Kong Monetary Authority maintained its base rate at 5.75%, which sent the HKD/USD pair slightly higher in forex trading this morning.


Brazil’s central bank lowered its key Selic rate by 50 bps to 12.25%. This being the third consecutive time policymakers voted in favour of rate cuts exerted pressure on the BRL/USD forex pair.


Russia’s real wages climbed by 9.5% year-over-year in August, topping market expectations of 8.5% growth, which sent the RUB/USD pair higher in forex trading this morning.

What else to watch today

France’s government budget value and manufacturing PMI, Brazil’s IPC-Fipe inflation, Spain’s tourist arrivals, manufacturing PMI and total vehicle sales, Italy’s manufacturing PMI and new passenger car registrations, Germany’s manufacturing PMI, number of unemployed persons, unemployment change and jobless rate, Eurozone’s manufacturing PMI, Mexico’s foreign exchange reserves, Turkey’s foreign exchange reserves, total vehicle sales, balance of trade and MPC meeting summary, US Challenger job cuts, initial jobless claims, nonfarm business sector labour productivity, unit labour costs, continuing jobless claims, factory orders and total vehicle sales, UK’s interest rate decision, Singapore’s manufacturing PMI, as well as Russia’s GDP.


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