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On February 25th, HP (HPQ.N) stated that its full-year earnings may reach the lower end of its previously forecast range due to tariffs and rising memory chip prices. The stock fell approximately 7% in after-hours trading after closing at $18.20 in New York. Over the past 12 months, the stock has fallen by 48%. HP and other device manufacturers are facing the dual challenges of rising memory chip prices and supply shortages as consumers buy new computers to replace outdated devices and acquire new AI capabilities. The company stated that the memory issue will persist throughout the fiscal year and may extend into the next. HP said it is raising product prices, working to bring in more suppliers, and adjusting some products to reduce memory demand. The company said today that it has made progress in these areas, including completing the certification of new suppliers. HP announced the launch of a multi-year cost-cutting plan aimed at saving the company $1 billion annually by 2028.Japans corporate services price index rose 2.6% year-on-year in January, up from 2.60% in the previous month.Japans corporate services price index fell 0.5% month-on-month in January, compared with 0% in the previous month.February 25th - Traders in the US futures and options markets are increasingly betting that the Federal Reserve will continue to cut interest rates next year rather than raise them. The spread of the Covered Overnight Financing Rate (SOFR) futures, which is closely linked to Fed policy expectations, is inverting significantly – indicating that traders are beginning to anticipate a longer period of central bank easing. Previously, traders had been betting that the Fed would cut rates twice by 25 basis points before the end of this year and then resume rate hikes in 2027. However, the increasingly heated debate surrounding the impact of artificial intelligence on the labor market has prompted them to reassess this expectation. Jack McIntyre, portfolio manager at Brandywine Global, stated, "The question is how AI will cause inflation. The only aspect of AI that could potentially cause inflation is the construction of data centers and the associated energy demand." Meanwhile, in the spot market, traders lack confidence in how to allocate US Treasuries. JPMorgan Chases latest client survey (for the week ending February 23rd) shows that neutral positions have reached their highest level since the end of 2024.February 25th - New revisions to Japans corporate governance guidelines could release some of the $840 billion in cash held by listed companies and fuel a new wave of buying in the Japanese stock market. The Financial Services Agency (FSA) will submit draft rules to an expert panel on Thursday, requiring companies to verify the efficiency of their cash usage, with the aim of implementing this change this year. Despite significant improvements in corporate governance in recent years, Japanese companies still have a large amount of idle cash on their balance sheets. Investing these funds in higher-yielding projects could potentially enhance the attractiveness of the Japanese stock market to investors. Sho Nakazawa, equity strategist at Morgan Stanley Mitsubishi UFJ Securities, stated, "This revision will make it easier to anticipate increased allocations to growth sectors, as well as more stable growth in share buybacks and dividends," which in turn could lead to capital inflows from overseas investors. Analysts have long argued that excessive cash holdings by Japanese companies are one of the factors hindering improvements in return on equity (ROE), a key metric closely watched by stock investors, which has caused Japans ROE to lag behind its Western counterparts.

Oil prices decrease because of demand worries and a stronger U.S. dollar

Haiden Holmes

Aug 03, 2022 11:10

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Oil prices fell about 1 percent in early trade on Wednesday, erasing gains from the previous session ahead of a meeting of OPEC+ members due to fears that a slowdown in global economic development will have a negative effect on gasoline demand and a stronger currency.


At 00:20 GMT, Brent oil futures fell 94 cents, or 0.9%, to $99.60 a barrel, wiping out the previous session's gain.


On Wednesday, after gaining 53 cents on Tuesday, West Texas Intermediate (WTI) oil futures decreased 68 cents, or 0.7%, to $93.74 a barrel.


The Organization of Petroleum Exporting Countries and its allies, including Russia, convene as OPEC+ on Wednesday. According to OPEC+ sources cited by Reuters last week, the cartel would likely maintain or slightly raise production in September.


Analysts foresee minimal change due to a bleak demand outlook as fears of a recession intensify, and underlined that top producer Saudi Arabia may be loath to boost output at the expense of OPEC+ member Russia, which has been hit with sanctions as a result of the Ukraine issue.


Before the meeting, three participants told Reuters that OPEC+ cut its forecast for an oil market surplus by 200,000 barrels per day (bpd) to 800,000 bpd.


Analysts at ANZ Research noted in a study, "In light of the uncertain economic situation and signs of deteriorating demand, the likelihood that they will announce an increase in output remains low."


Commonwealth Bank analyst Vivek Dhar stated that a number of factors are weighing on the demand outlook, including rising fears of an economic downturn in the United States and Europe, debt distress in emerging market economies, and China's COVID-zero policy, which restricts activity in the world's largest oil importer.


Dhar said in a letter that if global demand worries continue to rise, "we anticipate increased downside risks to our oil price forecast of $100/bbl in Q4 2022."


Supported by remarks from U.S. Federal Reserve officials that hinted at more interest rate hikes to battle inflation, a stronger dollar also affected oil prices, as a stronger dollar makes oil more expensive for holders of other currencies.


The American Petroleum Institute, an industry organization, said that U.S. oil inventories grew by nearly 2.2 million barrels for the week ending July 29, contrary to the predictions of approximately 600,000 barrels.


Inventories of gasoline declined by 200,000 barrels, which was less than what analysts had predicted; nevertheless, inventories of distillate decreased by around 350,000 barrels, contrary to analysts' projections of a rise.


The market will evaluate official data from the U.S. Energy Information Administration (EIA) at 14:30 GMT to corroborate the inventory assessment.