Despite the broadly disappointing Big Tech earnings, and the heavy selloff we saw in most Big Tech stocks, US equities ended last week on a positive note, thanks to record profits from US Big Oil companies, and a much better than expected reaction to Apple results.
Big oil reveal big profits
Exxon Mobil posted the strongest quarter of its 152-year history. The company tripled its earnings compared to the same time last year, and made an almost $20 billion profit in Q3 on the back of higher production and soaring nat as prices. Exxon shares rallied almost 3%, and they recorded their best month on record with a nice 27% jump over the month.
Chevron, on the other hand, made a bit more than $11 billion, a bit less than last quarter, but better than market expectations and almost double the amount it made a year ago. Together with Exxon, they made a combined $30bn in just three months. The stock gained more than 1%.
In the UK, Shell also announced $9billion revenue last quarter, increased its dividend by 15% and announced a $4 billion share buyback program. The stock broke above the June-October horizontal range, to the upside. BP is due announce earnings tomorrow and will likely have a similar surprise for its investors.
In the meantime, the American crude consolidates above the 50-DMA, but failed to clear the $90 offers last week, as recession fears prevent a further rally from developing.
Higher oil prices mean higher inflation. Higher inflation means tighter Fed, and other central banks, and tighter central bank policies mean less growth, which in return means less demand for oil – even though, oil demand is expected to increase to record levels next year, and there is not enough oil, or enough willingness from oil producers to satisfy that extra demand.
Therefore, the downside in oil is as strongly capped as the upside. Solid support is seen around $78/82 region, and oil will be posting its first monthly advance since May.
Powell could again slap the Fed doves
Released last Friday, the US PCE index, which is a gauge of inflation closely monitored by the Federal Reserve (Fed) remained flat at 6.2% over the year, while the core PCE continued increasing, but happily less than expected.
The US core PCE now stands at 5.1% – that’s more than twice the Fed’s 2% policy target. Therefore, even though the data was less scary than many feared, it will hardly change the Fed’s plan to hike the rates by another 75bp this week, which is given some 80% probability at the start of this week.
What’s more important than the rate hike itself is what the Fed will be doing next. While some Fed members voiced possibility of slowing the pace of rate increases over the past weeks, there is a good chance that Jerome Powell slashes the dovish hopes this week, as he has done earlier this year. If that’s the case, we could see positive market vibes evaporate.
Russia decided to pull out of a deal to allow Ukrainian crop shipments, blaming strikes on its naval fleet, which it said was due to drone attacks that were launched from Odessa. Turkey and the UN will be trying hard to save the pact, but we already see wheat futures jump more than 5% this morning – which is also bad for inflation expectations.
China on other hand missed both the manufacturing and services PMI expectations; both PMI indices slipped below 50, to the contraction zone in October due to Covid restrictions in major cities, and many cities are still dealing with lockdown measures, and Xi Jinping made sure to emphasize that he will continue to fight… the virus.
In Brazil, Lula won the election bearing Bolsonaro by less than 2 percentage points. The latter said he refuses the defeat, which means that we will see some more political uncertainty in Brazil in the coming weeks.