News / Analysis
Finance Update – The Day Oil was FreeApril 21, 2020
Clearly, today’s biggest story is West Texas Crude, which yesterday shocked markets by trading negative. Storage at the national repository in Cushing Oklahoma has crossed the 70% mark and expected to overflow within 2 weeks.
Negative prices mean that traders were paying cash for storage place ahead of today’s expiration on May oil future prices, and last week’s OPEC+ agreement with the US and Mexico to cut production is but a dint in the armour.
One major upshot here could be a chain-reaction of defaults, starting with shale production companies that are indebted to banks to a level that – alongside the Coronavirus aid packages – could impact banks to a degree no less concerning than 2008’s subprime mortgage fiasco.
At present, though, June contracts are trading just above the $20 mark and the COTs (until Friday) are steady.
Although Brent was late to react to the WTI rout, conditions are not assuaged by continued strife between Russia and Saudi Arabia – both vying for Asian markets, where demand continues relatively unabated.
Aramco has cut prices by about $2 per barrel followed by other Gulf states, and even eyeing Russia’s Eastern European markets.
Meanwhile, Gold is up above the 1700 level again and rising (1715 at last report) and Bitcoin followed oil abruptly back down to the 6800-6900 range.
The dollar inched higher as related commodity currencies fell, and US indices closed down once again yesterday, led by the Dow’s -2.44% drop – 550 points on the oil crash alone.
US President D.Trump said yesterday he may cease Saudi oil imports to support the local industry.
Meanwhile, he expects to halt all immigration into the US to mitigate the effects of the “Invisible Enemy”.
National economic activity in Mach contracted to minus 4.19, based on the Chicago Fed’s data, and both the 3 and 6-month Treasuries auctions saw yields more than halve.
The treasury has finally begun releasing aid funds, beginning with a $3bn chunk to embattled airliners, but pay-check protection for bank loans to individuals and SMEs will have to wait for tonight’s Senate vote.
White House trade adviser Peter Navarro has accused China of withholding vital Cofid-19 data, impeding the development of a vaccine, in what he considers a race to the market.
Asian indexes this morning are all in the red, led by Australia’s S&P’s -2.46% with New Zealand’s DJ not far behind at -2.33%.
The Hang Seng is at -2.06% and the Nikkei, -1.97%.
The US State Department claims that China is taking advantage of the Corona crisis to crackdown on activists in Hong Kong and increase air-force patrols near Taiwan and over contested zones in the South China Sea.
The Euro continues to trend sideways in anticipation of Thursday’s economic summit dedicated to means of dealing with the pandemic’s fallout.
Reuters has low expectations, since national interests may clash regional requirements.
European indices managed to eke out half percent gains yesterday after plunging on the negative oil glut.
Once again, France’s AEX starred with a 1.37% increase. Most increases were generated by increased value in healthcare stocks. March’s PPI in Germany contracted by a disappointing 0.8% (MoM), while the Eurozone’s trade surplus climbed to €25.8 bn – seasonally adjusted for February.
Meanwhile, in France, increasing vandalism throughout the capital is indicating public pressure against the continued lockdown.
The pound lost some traction after PM Johnson warned against premature lockdown relief. Ahead of tomorrow morning’s data deluge from the UK, employers are reported to have furloughed over a million employees. This morning’s unemployment rate increased to 4%, with earnings (excl. bonuses) in February down 2 ticks to 2.9%.
After watching the China lockdown in practice, Alibaba has announced a $28.25 bn investment in cloud services. And on the earnings front, Halliburton stock fell on a worse-than-expected 12% revenue drop YoY.
IBM income lost 35% on the year, EPS down 26%. Today’s expected reports include Coca Cola, Snapchat, Philip Morris, Netflix and Lockheed, with AT&T tomorrow, alongside PayPal, Tesla Boeing and Visa.
|09:00 AM GMT||EU & Germany||ZEW Economic Sentiment|
|12:30 PM GMT||Canada||Retail Sales|
|12:55 PM GMT||US||Redbook Index. Existing Home Sales at 2 PM|
|08:30 PM GMT||OIL||API Weekly Oil Inventories|
|00:30 AM GMT (+1)||Australia||Westpac Leading Index|
|06:00 AM GMT||UK||PPIs, CPIs, & Retail Prices|