Why is Oil Going Down…

Thoughts of the Day

Despite OPEC+ agreeing to voluntary cuts of 2.2 million barrels/day in production a week ago, Brent oil prices have plummeted nearly 10%. Now, it is trading over 20% lower than late September highs. Priced at 74.65, it’s only 6% above this year’s lows at 70.05. If oil drops below $70, expect continued OPEC+ efforts to support prices.

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Day Ahead

Nothing noteworthy on the horizon today.

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What Happened Yesterday

Market Movements as of New York Close 6 Dec 23
  • The US ADP Employment Change showed +103k jobs being added to the economy in November (vs +130k expected), a decrease from +106k previously (revised from +113k). 
  • The Bank of Canada kept interest rates at 5% in its monetary policy decision for the third consecutive time as expected as it wants to see further moderation in inflation. The committee stated that signs of moderation in the economy remain with a relief in spending and price pressures due to current monetary policy. However, the central bank noted that risks of higher inflation remain in the economy and that it stands ready to raise rates if necessary. Reaction in the CAD was muted.
  • Brent crude fell -3.52% to settle at $74.18 a barrel, the lowest level since June this year, because a larger-than-expected rise in U.S. gasoline inventories and growing expectations of a slowing economy exacerbated worries about fuel demand
  • The US Treasury Yield curve inversion widened further to 0.48% as the US 2-year bond yield rose 0.03% to 4.60% while the 10-year bond yield decreased -0.06% to 4.12%.
  • The US stock futures rose slightly in the Asian trading hours with the S&P 500 futures up +0.36% intraday in the Asian session. However, the US stock futures started to falter when the London session began but still traded within a small range. Some optimism then returned after the release of the weaker than expected US ADP labour data with the S&P 500 futures hitting an intraday high of +0.55%
  • Despite the opening higher from the previous day, the US stock market faced a weak New York session probably due to recession fears amidst the weakening labour data. Consequently, the S&P 500 closed -0.39% lower (high: +0.52%, low: -0.45%), the Dow Jones slipped -0.19% (high: +0.47%, low: -0.28%) while the Nasdaq fell -0.56% (high: +0.71%, low: -0.63%).
  • The crypto market took a breather from its recent relentless advance due to the weak risk sentiment in the broader market with Bitcoin down -0.71% and Ether down -2.63%.
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Headlines & Market Impact

Alphabet unveils long-awaited Gemini AI model

Notable Snippet: Alphabet (GOOGL.O) on Wednesday introduced its most advanced artificial intelligence model, a technology capable of crunching different forms of information such as video, audio and text.

Called Gemini, the Google owner’s highly anticipated AI model is capable of more sophisticated reasoning and understanding information with a greater degree of nuance than Google’s prior technology, the company said.

“This new era of models represents one of the biggest science and engineering efforts we’ve undertaken as a company,” Alphabet CEO Sundar Pichai wrote in a blog post.

Since the launch of OpenAI’s ChatGPT roughly a year ago, Google has been racing to produce AI software that rivals what the Microsoft (MSFT.O)-backed company has introduced.

Google added a portion of the new Gemini model technology to its AI assistant Bard on Wednesday, and said it planned to release its most advanced version of Gemini through Bard early next year.

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Meta and Microsoft say they will buy AMD’s new AI chip as an alternative to Nvidia’s

Notable Snippet: Meta, OpenAI, and Microsoft said they will use AMD’s newest AI chip, the Instinct MI300X — a sign that tech companies want alternatives to the expensive Nvidia graphics processors that have been essential for artificial intelligence.

If the MI300X is good enough and inexpensive enough when it starts shipping early next year, it could lower costs for developing AI models.

AMD says the MI300X is based on a new architecture, which often leads to significant performance gains. Its most distinctive feature is that it has 192GB of a cutting-edge, high-performance type of memory known as HBM3, which transfers data faster and can fit larger AI models.

AMD CEO Lisa Su projected the market for AI chips will amount to $400 billion or more in 2027, and she said she hopes AMD has a sizable part of that market.

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Yellen says markets anticipating Fed moves can be ‘helpful complement’ to monetary policy

Notable Snippet: U.S. Treasury Secretary Janet Yellen said on Wednesday that bond markets anticipating the Federal Reserve rate moves can be a “helpful complement” to monetary policy if participants are thoughtful about interpreting incoming data.

“The Fed obviously wants to create financial conditions that are consistent with bringing inflation down and the markets anticipate future fed moves based on their reading of incoming data,” Yellen said.

“If markets are thoughtful when reading the data, it can be helpful as a complement to monetary policy.”

Bond yields fell further on Wednesday as private payrolls data showed further cooling in the labor market ahead of Labor Department jobs data expected on Friday.

Yellen repeated her view that a “soft landing” scenario for the U.S. economy, with slowing growth and lower inflation, was on track.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord