By Geoffrey Smith
Investing.com — The Federal Reserve is expected to start taking away the punchbowl later, announcing the phase-out of its $120 billion monthly bond purchases. Zillow and Activision Blizzard (NASDAQ:) join the lengthening list of companies to erase most or all of their pandemic-era gains. Joe Biden and the Democrats are dealt a stinging loss in Virginia and oil slips after signs that high gasoline prices are hurting U.S. demand. Here’s what you need to know in financial markets on Wednesday, 3rd November.
1. Taper time
The Federal Reserve is widely expected to announce the phasing out of its monthly bond purchases when its two-day meeting concludes at 2 PM ET (1800 GMT). Consensus forecasts suggest the central bank will pare its purchases by $15 million a month, meaning that the tapering process will be complete in eight months.
There is therefore scope for a hawkish surprise if the Fed goes for a quicker timeline, as some regional Fed officials have argued for in recent weeks.
The bigger unknown is to what degree Fed Chair Jerome Powell will change his language on inflation, having only recently started to acknowledge that the rise in consumer prices is broader-based and longer-lasting than the Fed had forecast. Any change in rhetoric here will be taken a coded warning of earlier interest rate hikes, which could also be telegraphed in the Fed’s ‘dot-plot’ of rate expectations.
2. Zillow’s flipping business flops
Shares in Zillow cratered and are extending their losses in premarket trading, after the real estate company said it faced writedowns of over $560 million on houses it bought for flipping purposes.
The online realtor’s Zillow Offers business was slow to realize that the housing market, which boomed during the first year of the pandemic, was cooling off earlier in the year. It also under-appreciated the difficulties it would have in finding labor and materials to complete the refurbishments that are usually needed for a resale.
Zillow joins the lengthening list of stocks that have now either completely or overwhelmingly unwound their pandemic-era gains. Keeping it company this morning will be Activision Blizzard, which is trading at a 19-month low in premarket after also reporting a disappointing third-quarter profit and outlook.
3. Stocks in holding pattern ahead of Fed
U.S. stock markets are set to open fractionally below the all-time highs they closed at on Tuesday, although trading is sure to stay subdued until the Fed meeting.
By 6:25 AM ET (1025 GMT). were down 33 points, or 0.1%, while were down by slightly less and were up 0.1%.
In addition to Zillow and Activision, stocks likely to be in focus later include Tinder owner Match Group (NASDAQ:), whose numbers also fell short of expectations late on Tuesday, and Humana (NYSE:), which reported earnings some 50% above forecasts earlier. Also in focus will be Facebook (NASDAQ:), sorry, Meta Platforms, after it said it will discontinue the use of facial recognition technology amid increasing scrutiny of its governance.
4. Dems punished for inaction in Virginia
Republican candidate Glenn Youngkin won the hotly-contested governorship race in Virginia, in a contest widely seen as having big implications nationwide for next year’s mid-term elections.
Youngkin, a former private-equity executive, had concentrated on issues such as education, where he scored heavily in opposing the advance of Critical Race Theory in schools. He also appears to have benefited among swing voters by distancing himself from former President Donald Trump.
Exit polls indicated that his opponent, the Democratic incumbent Terry McAuliffe, had by contrast failed to motivate his core supporters, in what analysts saw as disillusionment with the administration’s and Congress’s ability to implement the agenda they had promised at last year’s elections. The Democrats’ key spending bill remains held up in Congress by opposition from Senators Joe Manchin and Kyrsten Sinema.
5. Oil slips after API
Crude oil prices sold off after another unexpectedly large rise in U.S. inventories last week, which pointed to ongoing demand destruction as gasoline prices hit their highest in seven years.
The pain felt by U.S. drivers has led to President Joe Biden increasing pressure on major exporters at the Organization of Petroleum Exporting Countries to increase output. There’s still no suggestion that OPEC will go beyond the 400,000 barrel a day increase slated for December when it meets with Russia and others on Thursday.
By 6:30 AM ET, futures were down $1.80 or 2.2% at $82.11 a barrel, while was down 1.9% at $83.14 a barrel.
The American Petroleum Institute said crude inventories rose by 3.6 million barrels last week, against expectations for a much smaller rise. The U.S. government’s data are due at 10:30 AM ET as usual.
Oil Prices Fall amid Protests in China
Oil prices fell on Monday amid a general decline in investor appetite for risk amid information about the ongoing protests in China against vested restrictions.
The cost of January futures on Brent crude oil on London’s ICE Futures exchange was $81.31 per barrel on Monday, down $2.32 (2.77%) from the close of the previous session. At the close of trading on Friday, those contracts fell $1.71 per barrel to $83.63.
Oil prices decline – what’s going on in the market?
The price of WTI futures for January crude fell by $2.31 (3.03%) to $73.97 per barrel in electronic trading on the New York Mercantile Exchange (NYMEX). By closing of previous trades, the cost of these contracts decreased by $1.66 (2.1%) to $76.28 per barrel. Brent and WTI gained 4.6% and 4.8%, respectively, last week.
According to Bloomberg, protests were held in cities across the country, including the capital Beijing, as well as Shanghai, Xinjiang, and Wuhan, which was originally the epicenter of the COVID-19 spread.
That contributes to a stronger U.S. dollar, which reduces the attractiveness of investments in crude, and also raises the possibility of even more significant tightening of restrictions by Chinese authorities, the agency said.
“The outlook for the oil market remains unfavorable and the events of this weekend in China do not add to the positive,” notes Warren Patterson, who is in charge of commodities strategy at ING Groep NV in Singapore.
According to the forecast of analytical company Kpler, oil demand in China in the fourth quarter will decrease to 15.11 million barrels per day (bpd) compared to 15.82 million bpd a year earlier.
Earlier we reported that Russia will ban the sale of its oil to countries that have imposed a price ceiling.
Oil Russia ban news: Russia will ban the sale of its oil to countries that have imposed a price ceiling
Will Russia sell oil to Europe? The administration of President Vladimir Putin is preparing an order prohibiting Russian companies and any trader from buying Russian oil to sell raw materials to countries and companies that have imposed a price ceiling on Moscow. Bloomberg news agency wrote this, citing a report from sources.
“The Kremlin is preparing a presidential decree banning Russian companies and any traders buying national oil from selling it to anyone who participates in the price ceiling,” the publication wrote.
According to the newspaper’s interlocutors, this would prohibit any mention of the price ceiling in contracts for Russian crude, as well as transferring it to countries that have joined the price ceiling for the natural resource.
In the first half of September, the press service of the US Treasury Department said that the USA, together with its allies from G7 (Great Britain, Germany, Italy, Canada, France and Japan) and the European Union (EU) would impose a ban on marine transportation of Russian oil on December 5 and oil products – on February 5.
Earlier we reported that EU negotiations on limiting the prices of Russian oil reached a deadlock today.
EU talks on restrictions on Russian crude oil prices today stalled
Negotiations between the European Union countries about the “ceiling” of Russian crude oil prices today reached an impasse; Bloomberg reported, according to its sources.
Representatives of the bloc cannot reach an agreement on the ceiling price of Russian oil. According to the agency, the proposed European Commission limit of $65-70 per barrel, Poland and the Baltic countries believe “too generous,” while Greece and Malta, which is actively engaged in transporting fuel, do not want the limit to fall below $ 70. Recall that the Russian response to the oil price cap was negative. The Russian government has officially said that it will only sell oil at market prices.
“We are looking for ways to make this solution work and we are trying to find a common ground to implement it in a perfectly pragmatic and efficient way, while avoiding that it may cause excessive inconvenience to the European Union,” said German Chancellor Olaf Scholz.
Earlier, we reported that the SEC fined Goldman Sachs $4 million for non-compliance with ESG fund principles.
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