Wednesday, April 22, 2020

Asia Times: Brent falls below US$20 per barrel as oversupply continues to dampen crude oil’s outlook for the year

Tags
  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil
  • DXY
  • Brent

04222020a

Market Recap: Brent falls below US$20 per barrel as oversupply continues to dampen crude oil’s outlook for the year

Stocks in the US tracked losses in the oil market, with all three major indices falling the most in the last 12 trading sessions. The S&P500 is now at a 4.80% loss since the start of the week, the most since the 14.98% decline during the week ended March 20th, when the US saw a massive surge of new Covid-19 cases. The loss came despite the Senate passing a US$484bn bill to replenish an empty small business loan program. The bill will also include allocation of funds for virus testing and hospitals in the US. The House will vote on it next on Thursday, before reaching US President Donald Trump, who has already said that he will sign it.

Utilities and real estate fell the least among S&P500 sectors, losing only 1.61% each, while technology stocks led the laggards to decline 4.10% on Tuesday. Texas Instruments reported better-than-expected first quarter revenue (Revenue: US$3.3bn (A), US$3.1bn (E), EPS: US$1.240/share (A), US$0.987/share (E)), as its customers stepped up orders to beat potential supply chain disruptions as a result of the global lockdown. The company's forecast for the second quarter also beat expectations, although company executives did signal a potential drop in demand after the pandemic eases as a result of the inventory building by customers. Its stock fell 4.21% on Tuesday but gained slightly more than 2% in after-hours trading.

Netflix's number of paid subscribers exploded in its first quarter to 15.8mn users, beating analysts forecast of 8.47mn by a large margin. While its stock surged more than 12% initially in after-hours trading, it suffered a reversal later, only inching less than 1% higher as of 8am (GMT +8), as its forecast of 7.5mn new subscribers in the second quarter failed to impress investors. As expected, the company forecasted membership growth to decelerate as the lockdown starts to ease.

Indexes Daily Change (%) Net Change Closing Price
Dow Jones -2.67% -631.56 23,018.88
S&P500 -3.07% -86.60 2,736.56
Nasdaq -3.48% -297.50 8,263.23
*Source: Bloomberg

Oil-related currencies suffered for the second day in a row, after the sharp decline in value for the June contract for WTI crude oil futures highlighted deeper issues pertaining to the current oversupply. The Norwegian krone and New Zealand dollar performed the worst against the dollar among major currencies, while the greenback strengthened against every other currency as demand for its safe haven properties rose.

04222020b

Meanwhile safe haven assets declined with the exception of the dollar and longer-term US Treasuries. Gold inched 0.56% lower while the Japanese yen weakened 0.17% against the greenback. Two-year US Treasuries fell slightly, allowing two-year yields to inch higher by 0.2bps to 0.20%. Benchmark 10-year yields fell 3.6bps to 0.57%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.56% -9.45 1,686.20
Silver -2.81% -0.43 14.55
JPY -0.17% -0.18 107.80
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.2 0.20%
10-Year -3.6 0.57%
30-Year -5.4 1.16%
*Source: Bloomberg

Oil prices plunged for the second day in a row on Tuesday. The May contract for WTI crude oil futures managed to rise above zero on its last day of trading, while the June contract dived 43.37% to fall lower than US$15 per barrel. The sharp decline again highlighted the oversupply of crude oil, prompting OPEC+ to have an emergency conference call meeting with several member states. Russia however, did not take part. It is unclear whether there will be further action from the bloc from the meeting. WTI crude oil futures did get a boost on Wednesday morning, after Trump and US Energy Secretary Dan Brouillette signalled potential aid for US energy companies. Brouillette said that the US is working on a potential expansion of its oil reserves, while also ensuring that oil firms will be able to access the Covid-19 financial aid programs. The WTI benchmark was 18.93% higher on Wednesday morning as of 8.51am (GMT +8).

Oil Futures Daily Change (%) Net Change Closing Price
Brent Crude -24.40% -6.24 19.33
WTI Crude -43.37% -8.86 11.57
*Source: Bloomberg

Asia stocks looks set to track US losses on Wednesday morning, with the Nikkei, KOSPI and ASX200 trading more than 1% lower in the first hour of the trading day. Futures tracking major US indices were trading slightly into the red on Wednesday morning in Asia as of 8.36am (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index -1.92% -369.90 18,909.99 8:25:20 AM
KOSPI Index -1.35% -25.32 1,854.29 8:45:20 AM
ASX200 Index -1.43% -74.60 5,146.70 8:45:05 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.12% -27.00 22,902.00 8:36:42 AM
S&P500 Futures -0.14% -3.85 2,728.25 8:36:49 AM
Nasdaq Futures -0.04% -3.25 8,428.50 8:36:48 AM
*Source: Bloomberg

Companies reporting earnings for the day ahead include (all timings in GMT +8 where available):

  • Delta Airlines (10pm)
  • Xilinx (5am +1)

Economic data releases for the day ahead include (all timings in GMT +8):

  • UK Mar Inflation Rate (CPI/RPI) (2pm)
  • Canada Mar Inflation Rate (CPI) (8.30pm)
  • Eurozone Apr Consumer Confidence (10.30pm)