Market Overview

British Petroleum (BP), Exxon Mobil (XOM), Chevron (CVX) and other oil industry leaders’ stock prices hit their highs since the end of April. This happened in the first days of autumn as a response to Russia's intentions to extend its export cuts by 300,000 barrels per day (bpd) in September, following 500,000 bpd production cuts that are valid throughout the end of 2023. Its deputy prime minister alexander Novak said the move was coordinated with Saudi Arabia and other members of the OPEC+ informal community of oil exporting countries. Saudi Arabia confirmed they were going to keep intact their previous decision on voluntary production cuts by one million bpd for October.

Brent crude futures surged to $90.2 per barrel on Monday evening of September 4, and continue to rally. However, signs of slow post-pandemic recovery in China, which is the major oil consumer, may limit the demand for energies. A private-sector survey revealed that activity in service sectors of the Chinese economy nominally expanded, but at the lowest pace for the last eight months. China is facing a severe property slump. Narrow consumer and industrial demand puts pressure despite government attempts to stimulate growth by limiting borrowing costs.

A steeper-than-expected fading in the Euro area business process last month was also flagged, which increases risks of recession in the bloc. The latest U.K. data on service activity showed its first drop since early 2023, while household spending is 5% lower in Japan from a year ago vs consensus estimates of only a 2.5% decline, and that was a fifth month of falls in a row for the world's third largest economy. It seems as if fuel exporters continue to reduce overall production not to boost oil prices, but rather to prevent a broader sell-off because of slowing demand, which may continue to go down in 2024.

Thus, energy stocks partially supported Wall Street dynamics in the wake of a resumed tech rally, after Adobe Systems (ADBE) stock price climbed to its 20-month price peak and Dell Technologies (DELL) surprisingly soared by more than 21% to hit its historical highs on raising business forecasts and thanks to ongoing optimism on both companies strategy in the field of artificial intelligence. 

Yet, the overall market picture is mixed. The U.S. Dollar index rallied to a five-month high and its advance since mid-summer approached 4.5% on growing bets that the Federal Reserve's interest rates would stay high.

Morgan Stanley issued a warning on September 5, which is in contrast with a moderate upside sentiment on Wall Street, on expectations the global economy can withstand the central bankers' hiking campaign. “At current prices, markets are now expecting a meaningful re-acceleration in growth that we think is unlikely this year, especially for the consumer,” they noted, adding that “potentially softer September and October data is not priced into many stocks and expectations”, so that "breadth remains weak for the S&P 500 and Nasdaq Composite". Referring to the number of stocks actually contributing to the rally analysts note that the gains are not spreading in most cases. Their conclusions are that the economy is "set to be weaker than expected", so that investors "are in for disappointment".

Meanwhile, chief technical strategist Stephen Suttmeier at the Bank of America remarked the S&P 500 has slid 0.7% on average in September, data since 1945 showed. Yet, when the S&P 500 was up between 10% and 20% prior to September, it extended gains over the month 65% of the time with an average return of 0.8%. This is the scenario for 2023 so far, he added, also saying that the large-cap gauge "is likely to climb 8% from its current level to finish the year trading at around 4,850 points if it follows historical patterns", especially as "the massive, AI-fuelled rally is a green light signalling further gains".

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