Monday, April 13, 2020

Asia Times: Oil producing countries reach deal to cut production by 9.7 million barrels per day

Tags
  • Dollar
  • Gold
  • Stocks
  • Oil
  • Brent

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Market Recap: Oil producing countries reach deal to cut production by 9.7 million barrels per day

It was a busy weekend for financial markets, with the Fed announcing additional stimulus for the US economy on Thursday and OPEC+ members agreeing on its largest ever production cut late on Sunday. Stocks in the US gained on Thursday before the Good Friday holiday as the Fed expanded its loan programs to US$2.3tn to help businesses amid the coronavirus outbreak. The additional stimulus will include the new programs started to support small and medium sized businesses, state and local governments and increase support to larger firms. In the Fed's statement, the central bank's additional actions includes as much as US$600mn worth of purchases of loans to SMEs (through its Main Street Lending Program), additional liquidity for the Small Business Administration's (SBA) Paycheck Protection Program (PPP), establishing a Municipal Liquidity Facility offering up to US$500bn in loans to state and municipal governments and expansioni of its scope for its Term ABS Loan Facility (TALF), Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF). While previously the Fed's purchases of corporate debt only included investment grade bonds, it will now be expanded to include purchases of securities recently downgraded from higher-grade status.

Indexes Daily Change (%) Net Change Closing Price
Dow Jones +1.22% +285.80 23,719.37
S&P500 +1.45% +39.84 2,789.82
Nasdaq +0.77% +62.67 8,153.58
*Source: Bloomberg

Consequently, the gain in the US equity markets pushed US major indices to double-digit growth over the week. The DJIA and S&P500 surged more than 12% while the Nasdaq gained 10.59% last week. The rest of the world wasn't far behind, with all major indices rising over last week as optimism for oil prices and the coronavirus outbreak peaking supported equity prices.

Indexes Weekly Change (%) Net Change Closing Price
Dow Jones +12.67% +2,666.84 23,719.37
S&P500 +12.10% +301.17 2,789.82
Nasdaq +10.59% +780.49 8,153.58
FTSE100 +7.89% +427.16 5,842.66
Euro Stoxx +8.63% +229.80 2,892.79
CSI300 +1.51% +55.96 3,769.18
Nikkei +9.42% +1,678.31 19,498.50
KOSPI +7.84% +135.26 1,860.70
ASX200 +6.31% +319.83 5,387.32
Hang Seng +4.58% +1,064.22 24,300.33
Straits Times +7.62% +182.03 2,571.32
*Source: Bloomberg

In the forex market, currencies were trading relatively muted on Friday as multiple major countries were closed for the Good Friday holiday. Major currencies were mixed, with most commodity-linked currencies inching slightly higher against the dollar. The greenback continued to drop through the week, with the Dollar Index decreasing 1.09% over the week to close at 99.48 on Friday.

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Safe haven assets gained slightly on Friday. Gold rose 0.77% but closed at 1,696.65, just short of 1,700. The yen slightly strengthened on Friday as well, inching 0.02% higher against the dollar. The US Treasury market was closed for the Good Friday holiday.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.77% +12.92 1,696.65
Silver +0.86% +0.13 15.22
JPY +0.02% +0.02 108.47
*Source: Bloomberg

Energy markets were the highlight of the week as OPEC+ members met last Thursday to discuss a possible cut to oil production amid the plunge in oil prices over the month of March. Oil retreated on Thursday before the meeting started, with Brent and WTI ending the day 4.14% and 9.29% lower on Thursday, before the futures market was closed on Friday for Good Friday. But oil producing countries were reported to have an agreement for a cut of 9.7mn barrels per day, or roughly 10% of the global supply late on Sunday, just short of the initial expectation for a 10mn barrels per day cut. Reports say that the cut will last for two months, of which non-OPEC+ members (US, Brazil, Canada, etc) will contribute five million. The production limits are set to start from May and last for approximately two years, although the limit will taper down to 7.6mn barrels per day after the initial two months, and then to 5.6mn barrels per day from 2021 to April 2022. Crude oil futures jumped on Monday morning, with Brent surging more than 5% while WTI spiked up more than 6% as of 9.12am (GMT +8).

Oil Futures Daily Change (%) Net Change Closing Price
Brent Crude -4.14% -1.36 31.48
WTI Crude -9.29% -2.33 22.76
*Source: Bloomberg

In Asia, the Nikkei and KOSPI indices were trading lower in the first hour of Monday's trading session, likely as investors wait on earnings season in the US to kick off. The Australian and Hong Kong Stock Exchange will remain closed for the Easter holiday on Monday. Futures tracking major indices in the US were lower on Monday morning as well. Major banks in the US will report earnings this week with JP Morgan first tomorrow evening at 7pm (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index -1.36% -266.11 19,232.39 8:53:10 AM
KOSPI Index -0.88% -16.45 1,844.25 9:13:10 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -1.38% -326.00 23,292.00 9:03:14 AM
S&P500 Futures -1.48% -41.25 2,738.50 9:03:16 AM
Nasdaq Futures -1.45% -119.50 8,108.00 9:03:14 AM
*Source: Bloomberg

There are no important economic releases for the day ahead.