Wednesday, August 26, 2020

Asia Times: US oil producer stocks weigh on major indices as storms approaching the US Gulf Coast threatens facilities in the area

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  • China
  • Dollar
  • Gold
  • Yen
  • Euro
  • Stocks
  • Oil

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Market Recap: US oil producer stocks weigh on major indices as storms approaching the US Gulf Coast threatens facilities in the area

Stocks in the US were mixed but continued to tilt mostly towards the upside as tech and tech-related shares lifted the S&P500 and Nasdaq. Gains were likely driven thanks in part to reaffirmations from both the US and China on their phase one trade agreement in a review of the deal. The commitment from both parties likely helped confirm expectations that the phase one trade deal will continue to be intact despite tensions rising over other issues as both countries deal with an economic contraction as a result of the pandemic. The stock market's detachment from the real economy also became more apparent on Tuesday, after consumer confidence suffered a sharp contraction in the headline figure (A: 84.8, E: 93.0, P: 91.7) and in both of the Conference Board's surveys covering the present situation (A: 84.2 P: 95.9) and expectations (A: 85.2 P: 88.9).

Indexes Daily Change (%) Net Change Closing Price
Dow -0.21% -60.02 28,248.44
S&P500 +0.36% +12.34 3,443.62
Nasdaq +0.76% +86.75 11,466.47
*Source: Bloomberg

The US oil industry suffers another rout, with Exxon dipping more than 3% as the sector lags the S&P500 index. Stocks of oil producers and refineries in the US fell on Tuesday as two storms approaches the Gulf of Mexico this week. Hurricane Laura, is expected to become a category three storm when it reaches the Texas-Louisiana shore on Wednesday afternoon or Thursday afternoon and cause as much as US$12 billion worth of damage in the region. The US Bureau of Safety and Environmental Enforcement (BSEE) reported on Tuesday that it estimates that 84.3% of current oil production and 60.94% of natural gas production in the Gulf of Mexico has been shut in preparation for the storms. In tech, Apple's shares likely weighed on the S&P500 index after retreating slightly by 0.82% on Tuesday, probably as investors started to take some profit ahead of the stocks split this week. Facebook was among the top performers, likely driven by a price target upgrade by UBS analyst Eric Sheridan to US$330 per share from US$242 a share.

In company news, shares of Salesforce surged 13.45% in afterhours trading after announcing an improved outlook to the year along with better-than-expected quarterly results. The software maker reported revenue of US$5.15 billion (E: US$4.9 billion), and adjusted earnings per share of US$0.86 (E: US$0.67/share) for Q2 2020. But the highlight was the company's sales projections of US$5.25 billion for the third quarter of the year, above the average analyst projection of US$5 billion. The outlook for the company appears to continue to be driven by a quicker adoption of technology to help businesses cope with a stay-at-home environment to better manage their respective client services. Salesforce's recent acquisitions, notably Tableau, has also largely contributed to the company's growth as synergies between its software offerings were likely a strong contributor to the additional growth that the company is experiencing.

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The dollar suffered a reversal thanks to reduced trading tensions. The renewed commitment from both the US and China drove demand for the dollar lower and other currencies higher on Tuesday. Sterling benefitted the most from the dollar's dip, likely thanks to concerns of a resurgence of Covid-19 cases in the EU. The euro still managed to inch higher after IFO's surveys covering business sentiment surprised the market. IFO's business climate for Germany for August beat economists' forecasts of 92.1 to arrive at 92.6, while its expectations survey slightly undershot economists' forecasts of 98.0 at 97.5 but still managed to show an improvement over July's figure of 97.0.

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A retreat was also seen in the safe haven asset space, further supporting a reduction in overall risk sentiment. Gold inched slightly lower but was mostly flat. The Japanese yen fell against both the dollar and the euro, but was more likely due to concerns regarding Japanese Prime Minister Shinzo Abe's health as Japanese TV broadcasters earlier this week showed Abe arriving at the same Tokyo hospital that Abe visited last week. The Japanese yen may become a focus for investors as it suffers from both concerns on Abe's health and consequently his term as Prime Minister as well as uncertainty on the US November presidential elections. US Treasuries mostly fell, although two-year treasuries were mostly flat. Benchmark 10-year yields were 2.9bps higher at 0.68% as a result.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.04% -0.70 1,928.18
Silver -0.27% -0.07 26.53
USD/JPY +0.39% +0.41 106.39
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.2bps 0.15%
10-Year +2.9bps 0.68%
30-Year +3.8bps 1.39%
*Source: Bloomberg

Oil futures continued to climb higher for the second day this week to new highs since the onset of the Covid-19 pandemic as storms approaching the US Gulf Coast threatens crude oil supply in the region. While the shut downs are likely to help alleviate concerns for supply in the overall crude oil market, the effects will probably only be temporary. Still, the uptick in crude oil prices looks justified given that the shutdowns will allow US crude oil stockpiles to continue to recover without the risk of a large build up due to increased production in the US thanks to rising oil prices. The outlook for oil still stands however, a slow and gradual recovery as crude oil demand remains subdued, especially as air travel demand continues to remain impacted by the pandemic (American Airlines announced that it will be cutting another 19,000 employees once US payroll aid for the sector ends on October 1st, another indication that air travel demand is likely to remain low for a sustained period of time).

Oil Futures Daily Change (%) Net Change Closing Price
Brent +1.62% +0.73 45.86
WTI +1.71% +0.73 43.35
*Source: Bloomberg

Investors in Asia continued to remain concerned for the global economy as equities in the region fell on Wednesday morning even as US equities suggested a growing risk appetite. The Nikkei, KOSPI and ASX200 were each trading lower in the early hours of Wednesday's trading session. Futures tracking major indices in the US were mixed, with a skew towards the tech-heavy Nasdaq index as of 9.08am (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.14% -32.07 23,264.70 8:56:20 AM
KOSPI -0.58% -13.62 2,353.11 9:16:20 AM
ASX200 -0.98% -60.09 6,101.30 9:16:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.07% -21.00 28,172.00 9:06:19 AM
US Futures +0.01% +0.25 3,443.25 9:06:19 AM
Nasdaq Futures +0.13% +14.75 11,741.00 9:06:19 AM
*Source: Bloomberg

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

  • US Aug 21st Mortgage Applications (MBA) (7pm)
  • US Jul Durable Goods Orders (P) (8.30pm)
  • US Aug 21st Crude Oil Stocks Change (EIA) (10.30pm)