According to Bloomberg, President Joe Biden plans to draw down 5 million barrels from the US Strategic Oil Reserves in reaction to rising oil prices. For the United States, this would be the largest ever draw. The White House aims to coordinate the release with those from India, Japan, and North Korea, though the latter’s releases will be significantly smaller. China depleted its oil reserves in September and indicated last week that it intends to do so again. The purpose is to persuade OPEC to raise output, but OPEC has countered by threatening to produce less oil to compensate for the reserve releases. Crude oil (/CL) fell 1.8 percent before the market opened as a result of the news, but it has already recovered from those lows.
Even if they draw from the oil reserves would be the largest ever, it would be small in comparison to the overall oil market. OPEC produces almost 30 million barrels each day, according to Statista. Some critics of the program want to keep U.S. oil in the country by prohibiting exports, while others want President Biden to repeal some of the executive orders he signed in January restricting drilling on federal lands and offshore. Increased drilling, according to these critics, might give a long-term answer to continued oil supply difficulties.
The rising US Dollar Index ($DXY) should also help lower oil costs, and it received a lift from a rate hike. The yield on a 10-year Treasury (TNX) increased by 5.79 percent. Rising rates could be a reaction to Federal Reserve Chairman Jerome Powell’s re-nomination by President Joe Biden. Lael Brainard, who is seen as more dovish and less likely to raise rates, was expected to be the next nominee, according to some investors. Ms. Brainard was chosen as the vice-chairperson.
Other regions were affected by the stronger dollar and higher interest rates. On the day, Bitcoin futures (/BTC) were gaining, but they gave up their gains and plummeted 2.92 percent. Similarly, gold futures (/GC) plummeted 2.54% as a result of the news, practically retracing its gain that began on November 4. Crude oil futures (/CL), on the other hand, look to be surviving the higher dollar, since they are still up on the day. Crude has lately been brought back, and it is now targeting the July highs as a possible support level.
The drop in tech equities coincided with the rise in interest rates. During the first hour of trading, the S&P Technology Sector Index ($IXT) rose 1.6 percent, but then fell back to settle 1.14 percent lower. Rising interest rates can be harmful to technology firms because they alter how certain investors evaluate stocks in their models.
Positive earnings reports from tech businesses appear to have mitigated the negative sentiment toward technology stocks. Zoom (NASDAQ: ZM) reported better-than-expected earnings and revenue after the market closed. However, the stock dropped 5.48 percent in after-hours trade, adding to its 3.59 percent loss on Monday. Zoom has lost roughly half of its value since its 52-week peak. Furthermore, analysts at Wells Fargo assumed coverage of the firm but only gave it an “equal weight” rating. Agilent Technologies (NYSE: A) also reported better-than-expected earnings, although the stock dropped more than 3% in after-hours trading.
The semiconductor shortage has prompted Samsung to build a $17 billion chip-making factory outside of Austin, Texas, according to The Wall Street Journal. Although the factory has the potential to produce 1,800 employment, production is not projected to begin until the end of 2024.
Despite missing earnings estimates, Chinese electric vehicle manufacturer Xpeng (NYSE: XPEV) is trading 3.6 percent higher ahead of the opening bell. Once the shortages of semiconductors and parts are rectified, the company gave a more optimistic forward earnings outlook.
Several retailers have also reported profits. According to its most recent financial report, Best Buy (NYSE: BBY) is having trouble increasing sales. While the company exceeded expectations in terms of earnings and revenue, it provided a worse holiday outlook, prompting a 12 percent drop in premarket trade.
Urban Outfitters (NASDAQ: URBN) and Burlington (NYSE: BURL) were both down 5.7 percent before the bell despite topping earnings and revenue projections. Both companies, like Best Buy, forecasted modest growth.
Dicks Sporting Goods (NYSE: DKS) climbed 1.6 percent before the market opened Wednesday night in after-hours trading. The corporation posted strong earnings and raised its forecasts for the future. Perhaps the stock is being dragged down by its retail counterparts.
Finally, in premarket trade, deep discount retailer Dollar Tree (NASDAQ: DLTR) is down 1.92 percent on earnings and revenue announcements that were in line with analysts’ expectations.
Look for volume to dry up throughout the day as investors begin to focus on the Thanksgiving holiday. Traders should be wary of their position sizes, as investors may want to start celebrating early.
The National Association of Realtors released the U.S. Existing Home Sales report after the market closed on Monday. The dollar amount of existing homes sold was higher than economists predicted, according to the study. In comparison to a year ago, the median home price jumped 13.1 percent and was up 0.8 percent for the month. However, seasonally adjusted data indicated that prices decreased 5.8% year over year in September but gained 1.3 percent in October.
Environmentally Friendly Steel
Steelmakers in the United States surged on Monday as investors began to examine who would benefit from President Biden’s Social Safety Net and Climate plan being passed by the House. Depending on how the plan is received in the Senate, an additional $2.2 trillion in expenditure might be added over the following decade. Steel Dynamics (NASDAQ: STLD) rose 6.2 percent, U.S. Steel (NYSE: X) rose 4.28 percent, and Cleveland Cliffs (NYSE: CLF) rose 2.96 percent on the news.
Everything That Glitters: The US dollar is anticipated to rise as the Fed continues to taper, and possibly even accelerates its tapering plans. This is due to the Fed’s reduced influence on how interest rates move along the yield curve. Interest rates may climb further, attracting more overseas investors searching for bigger returns. Foreign investors will need to swap their currencies for dollars to obtain higher yields in the United States, which is why higher rates assist to boost the currency. Because gold is traded in dollars, and a strong dollar causes gold to lose value, gold futures (/GC) usually fall in price as the dollar strengthens. This might make gold bugs’ investment look a little less gleaming.
Q&A about Mergers and Acquisitions: Ericsson (NASDAQ: ERIC), a Swedish telecoms corporation, has announced plans to purchase Vonage (NASDAQ: VG), a cloud-based telecom company, for $21 per share, for a total enterprise value of $6.2 billion. In response to the news, Vonage jumped 25.8% on Monday, while Ericsson dropped 6.8%. This is yet another agreement in what appears to be a banner year for M&A activity (M&A). Deal-making activity might reach a record $6 trillion by the end of 2021, according to KPMG. The previous high was $4.8 trillion, reached in 2015.
Interest rates are still at historic lows, despite recent increases in yields, which is one reason M&A activity is still high. M&A is a cheaper and faster option to expand a firm and gather knowledge and technology due to the low cost of money. Some investors, on the other hand, consider M&A as an indication that a firm can’t expand on its own and must rely on other methods. M&A activity, on the other hand, can be viewed as positive because it removes a firm from the market, reducing the supply of shares available for investment.
EV Moves to EB: Tesla (NASDAQ: TSLA) has surpassed $1 trillion in market capitalization this year, and newcomers Rivian (NASDAQ: RIVN) and Lucid (NASDAQ: LCID) have grown their market caps over General Motors (NYSE: GM) and Ford (NYSE: F) (NYSE: F). GM and Ford have struggled to find the same love as the other EV makers, despite their long histories in the car industry and significant expenditures in EV manufacturing. By 2035, General Motors has set a target of producing solely electric cars and trucks. It’s now attempting to raise the stakes once more by purchasing a 25% investment in Pure Watercraft, a Seattle-based firm that makes electric boats. The stock increased 3.66 percent on Monday, indicating that investors approve of the action.