Pivot? Please…
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Hi all,
This week has been a busy one with some major political, economic, and company-specific events occurring. Some of the biggest we will look at include the Federal Open Market Committee(FOMC) meeting, a major transition period for Twitter, words of warning from a major global investor, and the current joys of the oil industry. Enjoy!
Pumping out Profits
US Oil producers have come under scrutiny this week following earnings reports that have shown that they have made a total of $200bn in net profits over the last two quarters. These results mark the most profitable ever six-month period for the oil sector in the US, putting them on track for a record year. The news has not been welcomed in Washington, with current inflation levels having a big impact on democrat poll figures coming up to the crucial mid-term elections next week.
President Biden responded to the unprecedented earnings as “Profiteering” from the invasion of Ukraine, threatening to bring higher taxes to congress, a move that has already been implemented across the water in the UK and Belgium. Brent crude oil hit a peak of $140/barrel in March of this year and over the last two quarters has averaged $105/barrel. Take a look here to see the Spark portfolio’s current exposure to energy stocks!
Exxon Mobil Cashflows Q2 to Q3, source: Exxon Mobil Corporation
A Storm is Forecast
One of the world’s largest hedge funds Elliot Investment management has predicted that the worst could be yet to come for the global economy, warning its clients in a letter that it may become extremely difficult for investors to make money in the next year (as if it wasn’t hard enough already!). This comes as equities have lost $28tn in value over the last year, with the $56bn fund putting the blame on a ‘dishonest’ federal reserve, which has made it seem that supply chain issues were the main cause of inflation, whereas Elliot believes it has much more to do with the loose monetary policy implemented at the height of the COVID pandemic in 2021. Even though markets have dropped severely this year, Elliot claims this is not enough and that a 50% drop from 2021’s peak would be ‘normal’!
S&P 500 Index 2018 - Present, Source: Tradingview
Ethics? What’s that?
This week yet another corruption case against commodity trader Glencore came to a settlement when they were charged with bribery and corruption across Africa in securing favourable oil access. The company’s UK branch was ordered to pay a £182m fine for their actions spanning over the last ten years, alongside a £93m confiscation order(ban on profits made from the crime). Glencore UK was found to have paid over £28m in bribes in order to secure oil access, with the Judge for the case describing the fraudulent activity in their London office as “endemic”.
This follows a guilty plea earlier this year by the US division of Glencore to charges of fraud and bribery – at a cost of $1.1bn. All this corruption seems not to have much of an effect on Glencore’s shareholders, with the company’s shares up 37% year-to-date.
No Pivot for Powell
On Wednesday the Federal Open Market Committee met to raise the federal funds rate by 75 basis points for the fourth consecutive time, bringing the target range to 3.75 – 4.00%. Before the meeting, it was highly anticipated that Chair Jay Powell may state a pivot in the bank’s current Quantitative Tightening process in order to manage a soft landing for the US economy. This was certainly not the case, as he stated that they will continue with rate hikes until they have tamed inflation back to the 2% target. Following the announcement, bond yields spiked, and equities fell, as traders priced in the expectation of interest rates hitting 5.1% by next May.
10Y minus 2Y Treasury Yields – Currently showing a Yield curve inversion (This has preceded every US recession for the last 50 Years), Source: https://fred.stlouisfed.org/
Heads, you’re fired…
An exodus of Twitter staff began on Friday as Elon Musk has made plans to cut the Social Media giant’s costs, stating that it was necessary due to large revenue drops following activist pressure on the platform. Big names such as Audi, General Motors, Mondelez, Pfizer, and General Mills have all paused their advertising on Twitter as a result of Musk’s takeover.
Car companies appear to be the most concerned of the lot, due to Musk’s relationship with Tesla and questions over the fair treatment of other Auto manufacturers. A new version of Twitter’s subscription service which includes access to ‘blue tick verification’ was also announced, costing $7.99 per month.
Thanks for reading, have a good week!
Patrick
Disclaimer
This communication is for informational and educational purposes only and should not be taken nor used as investment advice, as a personal recommendation, or solicitation to buy or sell any financial instrument. This material has been prepared without considering any particular recipient’s investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or structured product are not, and should not be taken as, a reliable indicator of future performance. I assume no liability as to the accuracy or completeness of the content of this publication.