Written by: Derren Nathan | Hargreaves Lansdown
- Trump closes in on nomination taking at least 12 of 15 Super Tuesday states including California and Texas
- Shine comes off tech stocks as Chinese demand falters for US innovation. $233bn wiped of the value of the magnificent 7
- Fed Chair, Jerome Powell’s address to congress moves into focus today
- At 7,646 FTSE 100 treads water ahead of Chancellor Jeremy Hunt’s Budget speech
- Tullow Oil’s revenue and profits fall on average lower oil prices over 2023
- Brent crude recovers slightly to over $82
While Donald Trump has continued his seemingly inexorable path towards the Republican nomination, it’s news from the East that has been the main driver of the worst performance in US Stock Markets for three weeks. In a stark reminder that the rest of the world is not decoupled from weakness in China, third party reports of a 24% slump in Chinese iPhone sales in the first six weeks of the year weighed heavy on Apple shares which closed down nearly 3%. A fall in smartphone volumes combined with huge gains in market share for devices homegrown by Huawei seem to be the main contributors. It was a less than magnificent day for another of the Magnificent 7, Tesla which extended Monday’s losses. Tesla is also facing weak demand and intense competition in the People’s Republic. The shares are down nearly 10% so far this week.
Overall the magnificent 7 lost $233bn in market value on Tuesday with the only member continuing to defy gravity being advanced chip designer Nvidia, whose shares climbed 0.9%. Nvidia has seen surging demand elsewhere outweigh export restrictions to China and moved to mitigate these with a toned-down AI supercomputer for the Chinese market. Rumours suggest a similar move by rival AMD has hit a regulatory roadblock in getting its lower-powered model approved.
US market’s ears today will be firmly focussed on Fed Chair Jerome Powell’s testimony on Capitol Hill, where any clue on the likely timing, frequency and size of rate cuts is likely to be seized upon by investors. Weaker than expected Services PMI data and Factory Orders yesterday may provide some scope for a more doveish outlook.
The FTSE 100 is expected has opened flat today ahead of the Chancellor’s budget speech. The weak economic outlook and high levels of public borrowing may give him little headroom for sweeteners ahead of an election due within the next 11 months.
Brent Crude prices have recovered slightly from losses seen earlier in the week and are hovering above $82 per barrel. However scepticism over Chinese plans to revive growth continue to weigh on prices. Extended production cuts by OPEC+ nations have not provided much support either. Any higher than expected increase in US crude inventories later today are likely to be pounced upon by traders.
With the lower pricing environment it’s little surprise that Tullow Oil’s full year results have seen a 12% decrease in realised prices drive down revenue and profitability. It’s not all bad news though. Progress has been made towards shoring up the balance sheet and new debt facilities have been made available. With production growth expected in 2024 the outlook for improving cash flows at $80 oil is positive. But this remains a pure play on fossil fuels. There’s still no dividend on offer and with larger players leveraging their distribution capabilities to diversify their offering towards lower-carbon solutions, there are better long-term plays in the sector.
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