Tuesday, April 21, 2020

Asia Times: Expiring US oil futures contract plunge more than 300% into negative territory

Tags
  • Dollar
  • Gold
  • Stocks
  • Oil
  • RBA

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Market Recap: Expiring US oil futures contract plunge more than 300% into negative territory

Stocks fell on Monday as US oil futures broke zero and fell into negative territory for the first time in history. US lawmakers reportedly still disagreeing on the deal to replenish a small business loans program likely also weighed on investor sentiment. But with a Senate vote and House vote set for Tuesday and Wednesday, an agreement between Democrats and Republicans looks close.

In sector news, the utilities sector was the worst performing in the S&P500, retreating 3.89% on Monday. Real estate and energy stocks followed close behind, falling 3.74% and 3.29% respectively. In company news, IBM's earnings slightly beat analysts’ estimates for US$1.811 per share at US$1.84 per share. Revenue figures were not as rosy however, missing estimates by slightly more than US$100,000 at US$17.57mn for Q12020. The company also pulled its 2020 forecasts as a result of uncertainty amid the Covid-19 crisis. More earnings reports from companies like Netflix and Coca Cola will be released next.

Indexes Daily Change (%) Net Change Closing Price
Dow Jones -2.44% -592.05 23,650.44
S&P500 -1.79% -51.40 2,823.16
Nasdaq -1.03% -89.41 8,560.73
*Source: Bloomberg

Oil-related currencies took a beating on Monday, after oil prices fell below zero. The dollar gained against every other major currency with the exception of the New Zealand dollar which only inched 0.03% against the greenback as the New Zealand government announced that they would partially ease its nationwide lockdown in a week thanks to a slowdown in new cases of the novel coronavirus.

The Australian dollar fell on Tuesday morning ahead of the release of the Reserve Bank of Australia's (RBA) monetary policy meeting minutes, falling to as low as 0.6315 or a 0.33% drop. We don't expect much surprises from the meeting minutes, although financial markets will likely be focused on it for more details regarding the scope for the central bank's asset purchase program. With high levels of uncertainty in the current environment, the meeting minutes looks likely to only signal the flexibility of the program, allowing RBA officials to act according to market conditions. As a result, the Australian dollar may be little changed on the release of the meeting minutes.

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Meanwhile safe haven assets were mostly higher on Monday, as risk aversion returned to financial markets as a result of a plunge in oil markets and as earnings reports highlighted that the impact of the virus outbreak may be worse-than-expected. Gold inched closer back to 1,700's level while the Japanese yen weakened slightly against the dollar. US Treasuries advanced across the board, pulling benchmark 10-year yields 3.6bps lower to 0.61%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.76% +12.83 1,695.65
Silver +0.92% +0.14 15.06
JPY -0.07% -0.08 107.62
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year 0.0 0.20%
10-Year -3.6 0.61%
30-Year -4.4 1.22%
*Source: Bloomberg

US WTI crude oil futures dived the most on record, falling 305.97% to -US$37.63 per barrel as storage became a concern for oil traders with the current active May contract expiring today. The negative oil prices highlighted the costs of finding storage outweighed the potential profits for oil traders amid rock bottom oil prices as the world runs out of storage space. In contrast, the June contract ended the day at US$20.43 per barrel. The spread of more than US$35 was indicative that traders were trying to exit their positions to avoid physical delivery of crude oil. WTI did rebound on Tuesday morning, rising more than 100% to just a touch above 0 at US$0.56 per barrel as of 8.34am (GMT +8).

Oil Futures Daily Change (%) Net Change Closing Price
Brent Crude -8.94% -2.51 25.57
WTI Crude -305.97% -55.90 (37.63)
*Source: Bloomberg

Asia fell in the early trading hours of Tuesday, as investors started to be more cautious as more companies in the US start to release their quarterly earnings report. The Nikkei, KOSPI and ASX200 were each trading lower in the first hour of their respective trading day. Futures tracking major indices in the US inched slightly higher on Tuesday morning, as financial markets anticipate an agreement between Democrats and Republicans on the US$500bn top-up for a small business loan program in the near future.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index -1.35% -265.71 19,403.41 8:26:05 AM
KOSPI Index -0.52% -9.80 1,888.56 8:46:00 AM
ASX200 Index -0.44% -23.31 5,329.70 8:46:06 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.26% +62.00 23,550.00 8:36:12 AM
S&P500 Futures +0.37% +10.50 2,817.00 8:36:12 AM
Nasdaq Futures +0.39% +33.50 8,725.25 8:36:12 AM
*Source: Bloomberg

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

  • Coca Cola Co (7.30pm)
  • Lockheed Martin Corp (11pm)
  • Texas Instruments (4.30am +1)
  • Netflix Inc (After US Market Close)

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

  • RBA Governor Lowe's Economic and Financial Update Speech (1pm)
  • UK Feb Unemployment Rate (ILO) (2pm)
  • Germany Apr Expectations/Current Situation (ZEW) (5pm)
  • US Mar Existing Home Sales (10pm)