UAE leaves OPEC, OpenAI misses targets

00:00:00: Two major headlines dominated Marcus yesterday.

00:00:03: First, the United Arab Emirates announced that it is leaving OPEC after six decades driven by frustration with production quotas and ongoing tensions with Saudi Arabia.

00:00:14: And second, The Wall Street Journal reported that open AI missed several internal targets for revenue-and-user growth for months – a warning sign for an ecosystem worth hundreds of billions of US dollars!

00:00:27: So NASDAQ hundred fell one percent yesterday while oil prices kept rising.

00:00:31: later.

00:00:32: Later today, the Fed will announce its latest monetary policy decision and big technology.

00:00:37: Names.

00:00:37: we'll be reporting their earnings after the bell as well so let's see if they can keep investors in the mood!

00:00:44: So welcome to SwissCout Steady Market Talk.

00:00:47: it is Wednesday April twenty-ninth.

00:00:49: I'm Ipek Oskar Deshkaya And everything i say here Is based on my own opinion and analysis.

00:00:55: This show brought you by SWISQUOTE.

00:01:05: So we had two big headlines yesterday.

00:01:08: No Trump related, hallelujah!

00:01:11: And these were one Wall Street Journal reporting that open AI missed several monthly internal targets for new users and revenue... ...and to the United Arab Emirates is leaving OPEC Now it was hard to choose which one to start with but there you go.

00:01:27: I start with UAE.

00:01:29: So the UAE is leaving OPEC after six decades?

00:01:32: Yes, they want to follow their own oil strategy.

00:01:35: They don't wanna be constricted by OPECs production cutters!

00:01:39: They have had arguments about this before with Saudi Arabia and apparently thought that Middle East disruption was a right time for them.

00:01:48: Now, what's important to know here is that the UAE is for around twelve percent of OPEC's total production and will sure have an impact on the punch power of Opec globally.

00:02:00: OPEC on the other hand, accounts for about thirty five to forty percent of global market share and without UAE this market share would drop from thirty one to thirty six percent.

00:02:11: It ultimately means that OPEX's output restrictions will have a smaller impact on stabilizing global oil prices or keeping them supported.

00:02:20: And worse!

00:02:21: The UAEs departure could also encourage other producers to pursue their own national interest loan And that would mean maximizing production to maximize revenue in a context where smaller productions can no longer give enough support for oil prices globally, making the oil-restricting strategies fructious.

00:02:43: In short higher competition among oil producers and more supply will likely weigh on medium to long term oil prices when the Middle East settles and trade via this trade of homes is restored.

00:02:54: But in the short run, and given massive disruption to oil flows through the strait, well this session will have a limited impact on oil prices because geopolitical tensions weigh much heavier today.

00:03:06: And the oil market is under supply.

00:03:10: due to nearly complete halt of oil flow to global markets Hormuz and UAE cannot bring barrels to the market even if they wanted.

00:03:22: This is exactly why oil prices rose yesterday despite a UAE news, both US and Brent crude traded past one hundred five dollars per barrel level though they arose less than the shorted dated ones hinting that the UAE news have indeed got diluted by their highly intense geopolitical context.

00:03:45: And unsurprisingly, higher oil prices didn't entrant equity investors around the world but real head to equity sentiment was indeed needs open AI messed internal targets on revenue and user growth Suggesting that revenue growth may not be enough at open AI to meet the future and lofty competing contracts.

00:04:10: In other words, OpenAI might just miss on their future payments if they cannot pull money in.

00:04:15: Now it started up.

00:04:17: not meeting internal targets could have been a minor problem for global financial markets if, well its not sitting in the middle of hundreds billion US dollars of complex web of AI circular deals that actually includes the world's biggest and amply valued names.

00:04:37: I think of Nvidia here down around one point sixty percent yesterdays trading session.

00:04:42: AMD down three point forty percent.

00:04:45: Oracle down by more than full percent yesterday and SoftBank down nearly ten per cent.

00:04:52: Microsoft on the other hand rebounded one person yesterday after having announced a day earlier that they are relaxing their ties with the company.

00:05:02: Now, the reason why OpenAI missed its targets is likely the emergence of Google's Gemini and Anthropics Cloud models that came to challenge open AI especially in their lucrative coding business.

00:05:14: They simply took a share off OpenAI revenue!

00:05:17: And indeed, since last October, Anthropic-related stocks did notably better than the open AI related ones.

00:05:26: Now of course, the circles overlap with some big companies finding themselves in the intersection of these two circles like NVIDIA and AMD.

00:05:35: but Google and Amazon for example have been strongly backing Anthropics since recently while Oracle and Microsoft were among them major names on OpenAI's circle.

00:05:47: So what's next?

00:05:48: While open AI news impacted Google and Amazon less than they did, the company is heavily betting on OpenAI.

00:05:54: And here as I'm looking at you, SoftBank... The latter should have a limited impact on chip and competing demand, but the companies must navigate their revenue potential and risk from these AI companies.

00:06:26: From this individual company's more carefully because if open AI for example misses a payment well there will be a domino effect across the line And that is worst case scenario for the AR rally global implications.

00:06:40: And these implications wouldn't be great, right?

00:06:42: But anyway this morning the futures in the US are pointing at a positive start suggesting that market has already absorbed open AI news and just decided to ignore them.

00:06:54: On the other hand, the Federal Reserve will be in focus today along with earnings from Google, Microsoft, Meta and Qualcomm that are due after a closing bell.

00:07:03: The US big technology names are expected to print a forty percent revenue growth on average for last quarter.

00:07:10: Slowing but still very strong!

00:07:12: And for rest of S&P's five hundred companies.

00:07:15: eighty percent of these companies have already reported earnings or beat revenue expectations so far across Atlantic Ocean.

00:07:23: more mixed.

00:07:24: However, Barclays for example fell short of the US rivals in first quarter results while BP gained around one percent yesterday after confirming that the Middle East level also led to profit growth.

00:07:36: But overall, appetite in European equities is waning and that's due to rising energy costs and deteriorating growth prospects.

00:07:44: Meanwhile the twelve month inflation expectations for the euro area spiked to full percent.

00:07:50: a spike could eventually encourage workers as well.

00:07:54: higher salaries pass these additional energy costs onto their clients and the latter would lead to a fresh inflation spiral in the euro area that could oblige the European Central Bank to tighten its monetary policy by hiking interest rates.

00:08:10: Now, ECB is expected to stay pat when it announces latest policy verdict tomorrow.

00:08:16: but the benchmark for ten-year Euro Area government yield is painting a worrying picture.

00:08:22: On the FX front, the Eurodollar remains under pressure despite hawkish news for European Central Bank.

00:08:28: The pair has been testing a two-hundred day moving average indeed due to less hawking ECB expectations recently.

00:08:36: and that's because of deteriorating growth prospects for the euro area, which may somehow convince the European central bank that hiking interest rates roughly would not be a good idea.

00:08:47: And there is also the broad US dollar story that has having an impact on the euro dollars pricing these days because the U.S.

00:08:54: dollar's gaining field again these days are back off tense.

00:08:58: geopolitical environment in the Middle East as leading to rising oil prices again and rising oil price is simply being a rising demand for US dollars because Oil is negotiated in terms of us dollars into international markets.

00:09:12: But at some point the hawkish divergence from the European Central Bank would eventually bring the euro bulls end.

00:09:18: but for now Well, we must see oil prices stabilize and that's unfortunately not on the many du jour.

00:09:24: But who knows?

00:09:25: So this is all for today.

00:09:27: I'm Ipek Oskar Deshkoyean.

00:09:28: thank you for joining me And Thank You For All Your Beautiful And Supportive Comments!

00:09:33: I hope This Episode of Market Talk has been helpful... ...and it Has Been Insightful To You.

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00:10:05: I will meet again tomorrow and until then... Good day trading.