The Market Today

Oil Drops Below $12 per Barrel As Lockdowns Decimate Demand

by Craig Dismuke, Dudley Carter


The debates continue about when to re-open state economies with protests over the weekend countered by a lack of convincing reduction in confirmed cases. Over the past seven days, the number of new cases reported each day in the U.S. has averaged 29k, down just 2k from the previous seven-day period.  Some states appear to be ahead of others in containing the growth, likely to be able to justify re-opening their economies more quickly.

The SBA continues to wait for additional PPP funds after exhausting the initial $349 billion in less than one week.  Reports say that Congress is close to a deal.

Coronavirus Chartbook (Click Here) – Updated by 9:00 a.m. CT


Chicago Fed Index Falls into Recession Territory: This week’s economic calendar is quiet, with a few important reports later in the week (jobless claims and durable goods orders).  This morning, the Chicago Fed’s National Activity Index fell into recession territory, dropping from +0.06 to -4.19.  Incidentally, this was not the worst report on record.  The index dropped to -4.71 in January 2009. The broad index tracks 85 different economic variables including data on production and income, the labor market, personal consumption and housing, and sales and inventories.


Expiring Crude Futures Contract Collapses: Global equities have declined Monday following last week’s solid performances and Treasury yields have inched lower even as European yields have moved up. The bigger news, however, was a dizzying drop in the May futures contract for U.S. WTI crude oil. The May contract, which expires on Tuesday, dropped more than 35%, the steepest intraday decline since at least 1982, to below $12 per barrel, the lowest since 1999. The plunge occurred as pricing in the futures market converged with the physical market which has seen dried-up global demand amid the virus outbreak lead to swelling supplies that have filled capacity to the brim. Contracts beyond May also declined but less drastically, with the June contract down 11% to $22 per barrel. OPEC and other producers agreed on April 12 to cut a record 9.7 million barrels from daily production, but only starting in May. The volatility in the oil markets has weighed on global equities as investors continue to monitor corporate earnings announcements to determine how significantly the economic standstill has impacted companies’ bottom lines.

Corporate Earnings Season Continues; China Cuts Rates; Congress Close on More Funding: The largest U.S. banks kicked off the U.S. earnings calendar last week with tumbling profits as they added to loan loss reserves. Companies such as IBM, Coca-Cola, Netflix, Delta, Southwest, Alcoa, and several super regional banks are scheduled to release results this week. U.S. futures had pulled back more than 2% at 7:15 a.m. CT with Europe’s Stoxx 600 down 1% near its daily low. Most Asian countries saw their stock indexes decline earlier in the day while China’s CSI 300 actually rose 0.4%. After cutting its medium-term lending facility rate last week, China’s central bank lowered its one-year and five-year loan prime rates, key rates used to price consumer and business loans, by 20 bps and 10 bps, respectively. Japan’s Nikkei led losses in the region as the country’s exports contracted 11.7% YoY in March, the sharpest decline since 2016. Treasury yields were relatively calm considering moves in other markets with the 2-year yield unchanged at 0.20% at 7:50 a.m. and the 10-year yield down 1.9 bps to 0.62%. Markets are also watching progress on a possible deal between Congress and the White House to replenish the PPP small business loan program and provide more funding for hospitals and testing. Both parties said over the weekend that a deal was close.

ICYMI – April 17, 2020 Weekly Market Recap:
Market sentiment shifted back and forth for the first four days of the week as the push and pull of atrocious economic data and hopes for virus treatments and economic re-opening persisted. The IMF slashed its global GDP forecast for 2020 to -3.0% from +3.3% in January which would represent the worst contraction in global growth since the Great Depression. Domestically, quarterly earnings announcements from U.S. banks included double-digit profit declines as loan loss provisions swelled in anticipation of credit costs of the recession. The U.S. economic data clearly showed the depths of the economic devastation. A couple of housing reports signaled a sharp slowdown and a regional Fed survey slumped to its lowest level since 1980. Drawing a greater focus were the worst contraction on record for retail sales in March, the biggest drop in industrial production since 1946, and 5.3 million more jobless claims. In its Beige Book, the Fed colorfully described how the U.S. economy has contracted “sharply and abruptly” during the COVID pandemic. More signs of destruction were somewhat offset by hopes the global economy could soon re-open. Several European countries took first steps in relaxing some restrictions and the White House announced new guidance to help state governors decide when to re-open their states. Several states on Friday indicated some level of re-opening in the days and weeks ahead. Adding to optimism on Friday was a report of positive results from a preliminary trial of the drug Remdesivir in treating severely ill COVID patients. Reflecting the cautious optimism, the S&P 500 rose 3.0% while the 10-year yield declined 7.7 bps. Elsewhere, plunging oil prices drew headlines. Despite a record production cut from OPEC+ before markets opened Monday, U.S. WTI dropped 20% to a new low back to 2002 as the demand outlook deteriorated and physical supplies swelled. Click here to view the full recap.

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