Yields rise as Fed chairman receives approval from President Biden


Key points to remember:

  • President Biden takes action ahead of vacation
  • Dollar strength undermines Bitcoin, commodities and tech stocks
  • Changing interest rates are an underlying force for the dollar

Bloomberg reports that President Joe Biden is set to mine 5 million barrels of strategic US oil reserves in response to rising oil prices. It would be the biggest draw ever for the United States. The White House hopes to coordinate the release with other releases from India, Japan and North Korea, although their releases are much smaller in comparison. China already tapped its oil reserves in September and announced last week that it was looking to tap more. The aim is to push OPEC to increase production, but OPEC has responded by threatening to produce less oil to compensate for the release of reserves. The news prompted crude oil (/ CL) to trade down 1.8% before the market opened, but the price retreated from those lows.

Although the drawdown would be the largest ever drawn from oil reserves, it is not that much in relation to the oil market as a whole. According to Statista, OPEC produces around 30 million barrels per day. Some critics of the policy want American oil to stay in the United States by banning exports, while others would like President Biden to overturn some of the executive orders, which he signed in January, which drastically reduced access to the United States. drilling on federal lands and offshore. These critics say an increase in drilling could provide a long-term solution to ongoing oil supply problems.

The rising US dollar index ($ DXY) should also help lower oil prices and was further boosted by a rebound in interest rates. The 10-year Treasury yield (TNX) rose 5.79%. The rate hike may have been a reaction to President Joe Biden’s re-appointment of Federal Reserve Chairman Jerome Powell. Some investors expected Lael Brainard to be the next candidate, and she is seen as more accommodating and less likely to hike rates. Ms. Brainard has been appointed vice-chair.

The stronger dollar and rising interest rates have had an impact in other areas as well. Bitcoin (/ BTC) was up that day but gave up its gains and fell 2.92%. Likewise, gold futures (/ GC) fell 2.54% on the news and almost retraced their rally that began on November 4. However, crude oil futures (/ CL) appear to be resisting the stronger dollar as it was still rising that day. . Crude was pulled recently and is testing July highs as a potential support level.

Rising interest rates also pushed tech stocks down. The S&P Technology Sector Index ($ IXT) rose 1.6% in the first hour of trading, but sold off to close 1.14% in the red. Rising interest rates are hurting tech stocks because rising rates change the way investors value stocks in their models.

The negative mood towards tech stocks appears to have offset positive earnings announcements from tech companies. After the close, Zoom (ZM) reported better than expected earnings and revenue. However, the stock fell 5.48% in after-hours trading, adding to its 3.59% losses on Monday. Zoom is down around 50% from its 52 week high. Additionally, Wells Fargo analysts have assumed coverage of the company but only gave it an “equal weight” rating. Agilent (A) also reported better-than-expected earnings, but sold over 3% in after-hours trading.

According to the Wall Street Journal, the semiconductor shortage is prompting Samsung to build a $ 17 billion chip manufacturing plant outside of Austin, Texas. The plant could create 1,800 jobs, but production is not expected to be announced until the end of 2024.

Despite no profit forecast, Chinese electric vehicle maker Xpeng (XPEV) is trading 3.6% higher ahead of the opening. The company provided a more bullish forward-looking profit forecast once its semiconductor and parts shortages were resolved.

Several retailers also announced profits. Best Buy (BBY) is struggling to increase sales according to its latest earnings announcement. As the company beat profits and revenues, it offered a smoother vacation outlook, resulting in a 12% sell-off in pre-market exchanges.

As for clothing retailers, Urban Outfitters (URBN) was also down 11% ahead of the bell and Burlington (BURL) was down 5.7% despite earnings and revenue forecasts. Like Best Buy, both companies offered a moderate growth forecast.

Dicks Sporting Goods (DKS) rose in after-hours trading last night, but was down 1.6% before the market opened. The company has reported good profits and is giving higher forecasts. Maybe its retail peers are acting as a drag on the stock.

Finally, discount retailer Dollar Tree (DLTR) is also down 1.92% in pre-market trading as its earnings and revenue announcements are in line with analyst estimates.

As investors begin to focus on the Thanksgiving holiday, watch if the volume starts to dry up throughout the day. Traders should be careful about the size of their positions, as investors can leave early to start celebrating.

Turning to the housing market, after opening Monday, the National Association of Realtors released the report on existing home sales in the United States. The report showed that the dollar amount of existing homes sold was higher than analysts expected. The median home price is up 13.1% from a year ago and 0.8% for the month. However, seasonally adjusted figures showed prices fell 5.8% from a year ago, but rose 1.3% in October.

Green steel

US steelmakers rallied on Monday as investors began to consider potential House winners passing President Biden Social safety net and climate invoice. Depending on how the bill presents itself in the Senate, it could add $ 2.2 trillion in additional spending over the next decade. Nucor (NUE) rose more than 6% on the news, with Steel Dynamics (STLD) at 6.2%, US Steel (X) at 4.28% and Cleveland Cliffs (CLF) at 2.96%.

According to Investor’s Business Daily, Nucor offers a new energy efficient product called Econiq, which creates net zero carbon steel products. The company uses electric arc furnace technology made from recycled waste to maintain greenhouse gases at 70% of industry standards. Then the company uses carbon offsets from its 100% renewable electricity source and other areas to help offset the remaining emissions.

Everything that shines : As the Fed continues to cut and possibly even accelerate its reduction plans, the US dollar is expected to appreciate. This is because the Fed will have less of an impact on how interest rates play along the yield curve. Interest rates may continue to rise, which will attract more foreign investors looking for higher yields. In order to earn higher returns in the United States, foreign investors will need to exchange their currencies for dollars, which is why higher rates help to strengthen the dollar. As the dollar strengthens, the price of gold futures (/ GC) normally declines as gold is traded in dollars and a strong dollar causes gold to lose value. This means that the golden insects might find their investment a little less brilliant.

Mergers and Acquisitions Q&A: Swedish telecommunications company Ericsson (ERIC) has announced plans to buy cloud-based telecommunications company Vonage (VG) for $ 21 per share for an enterprise value of $ 6.2 billion. Vonage rose 25.8% on Monday in reaction to the news, while Ericsson fell 6.8%. This is another deal in what appears to be a banner year for mergers and acquisitions (M&A). According to KPMG, trading activity could reach a record high of $ 6 trillion by the end of 2021. The previous record was set in 2015 at $ 4.8 trillion.

Despite recent increases in yields, interest rates are still at historically low levels, which is part of the reason for the strength of M&A activity. The low cost of money makes mergers and acquisitions a cheaper and faster way to grow a business and acquire knowledge and technology. However, some investors see mergers and acquisitions as a sign that a business cannot grow on its own and must rely on alternative strategies. On the other hand, M&A activity can also be seen as bullish as it pulls a company out of the market and therefore tightens the supply of stocks available for investment.

EV becomes EB: Electric vehicle (EV) stocks have been very popular, for example Tesla (TSLA) reached a market cap of over $ 1,000 billion this year, and newcomers Rivian (RIVN) and Lucid (LCID) have increased their market capitalization above General Motors (GM) and Ford (F). Despite their longevity in the automotive industry and their big investments in manufacturing electric vehicles, GM and Ford have struggled to find the same love as other electric vehicle makers. GM has set a goal of only making electric cars and trucks by 2035. Now it is looking to raise the bidding up again by acquiring a 25% stake in Pure Watercraft, a Seattle-based company that creates electric boats. Investors appear to approve of the move as the stock rose 3.66% on Monday.

TD Ameritrade® commentary for educational purposes only. SIPC member.


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