News

WTI clobbered, stocks recoup earlier losses, gold rallies

CMC Markets

Equity markets in Europe have been heavily influenced by the oil market. 

The major indices started off on a positive note, but as things went bad to worse in the WTI market, the equity benchmarks were dragged lower too. The rapid decline in US oil spooked equity traders, but from approximately lunchtime onwards stock markets have been rebounding. It now appears the major indices will finish the session slightly higher.

Germany has allowed some businesses to re-open and that is seen as a step in the right direction for going back to normal. The lockdown is having a profound impact on the economies of Europe, but the gradual unwinding of the restrictions is giving dealers some hope.   

Premier Foods’ shares jumped today after the company confirmed that it is trading at the top end of expectations. The firm owns well-known brands like Bisto and Mr Kipling, and because of the lockdowns demand for its products has jumped as cooking at home has taken off. In the fourth quarter, group sales increased by 3.6%, while sales in March rose by 10.5%. The UK unit saw fourth-quarter sales jump by 7.3% and the March sales surged by 15.1%. The company also announced the segregated merger of the company’s pension schemes. The move should benefit all stakeholders, as the group should save £4 million annually in relation to the pension scheme. The stock hit its highest level since January – few companies can boast such rallies these days.

DFS said they are in the advanced stages of negotiating an additional debt facility of £60-£70 million. The facility already has access to a £250 million credit facility, but it wants to ensure that its working capital position is maintained until things return to normal. The furniture group is preparing for a possible equity issue too as a way of ensuring the balance sheet is strengthened.     

Marston’s have secured a waiver from potentially breaching its covenants. The pub group took the ‘precautionary’ measure on account of the business being suspended for 30 days due to the government imposed restrictions. The waiver has been granted until 29 May and it will automatically roll over to 15 June in certain circumstances. It is positive that the group has been given some breathing space in relation to its debt obligations, but on the other hand, having to secure a waiver signals weakness.

Redrow confirmed that it has now secured access to an additional £100 million in credit. The group’s revolving credit facility now stands at £350 million. The extra funding was secured through negotiations with six banks. Last month the house builder said it was eligible to tap into £300 million worth of funding under the Covid Corporate Finance Facility – the government supported lending scheme – so gaining access to cash shouldn’t be a problem for the firm.

Toto Wolff, the head of Mercedes F1, has made an investment in Aston Martin – he will have a 0.95% holding in the company. The group’s Chairman, Lawrence Stroll, said his priority is to restart production. Mr Stroll plans for the company to manufacture its first SUV, the DBX, and the longer plan will include looking into producing electric vehicles.   

Rightmove recently said that it is impossible to provide meaningful house price data because of the sharp drop-off in the number of properties being offered for sale. In light of the restrictions, it would seem the market is going to be put on hold for the foreseeable future. House builders such as Barratt Developments, Taylor Wimpey and Vistry suffered as a result. 

US

The S&P 500 is in the red as the slump in the oil market has dampened sentiment in stocks, but the index is off the lows of the day. The tech-focused NASDAQ 100 is fractionally higher. Traders are still hopeful that some US states will look to loosen their restrictions in the coming weeks. In addition to that, US law makers are making progress on replenishing the paycheque protection programme – a government backed scheme to help fund small businesses.       

Halliburton, the oil field services company was suffering today after the company issued a gloomy outlook. The painful fall in WTI is hurting the stock too. Adjusted EPS came in at 31 cents, topping the 24 cents forecast. Revenue was $5.04 billion, slightly above forecasts. The group took a $1.1 billion impairment charge – mostly related to pressure pumping assets. The group derives the bulk of its revenue in North America, and the region saw a 25% fall in revenue. To make matters worse, the company expects further declines in terms of revenue going into the next quarter. The oil sector is under so much pressure at the moment, one would imagine that major oil firms will be cutting back on expenses and not requiring Halliburton services as much. Halliburton were in the red but are now up 4%. The tumble in the oil markets is being felt across energy companies and oil related firms across the board. Occidental Petroleum shares are down 4%.      

It was reported over the weekend that Walt Disney will suspend pay for more than 100,000 workers on account of the lockdowns. Such a move is believed to save the company $500 million per month. The theme parks side of the business has been hit hard by the Covid-19 related restrictions. Its suspension of pay is not a good look for the company, especially as it is due to pay a $1.5 billion dividend in July. Earlier this month the group revealed that its new streaming service, Disney+ signed up more than 50 million subscribers – so one area of the business is clearly doing well. UBS and Credit Suisse both downgraded the stock today.

FX

The US dollar is in demand today as the greenback has benefitted from safe-haven plays – traders are seeking out more stable currencies in these uncertain times. GBP/USD have been pushed into the red on account of the upward move in the US dollar. The euro has held up well versus the dollar, and it has gained ground versus sterling. It has been a quiet day in Europe and the US in terms of economic announcements.

The CMC CAD index has been hammered on account of the severe declines seen in WTI. The Norwegian Krone also been hurt by the tumble in the energy market.

Commodities

WTI has had an awful session as the energy has plunged to a level last seen in the late 1990s. It has seen its largest intraday loss since 1982. Demand woes as well as oversupply concerns are hanging over the market. The WTI May contract is due to expire tomorrow, and it appears the selling pressure is ramping up as dealers scramble to get out of the contract. The WTI June contract has endured a large loss today, but its declines are small when compared with the May contract. We might see some normality return to the WTI market once the May contract has expired.  

Gold is higher this afternoon as the dollar gave up much of its earlier gains. The metal tends to have an inverse relationship with the US dollar, and that is what we are seeing today. The uncertainty in the energy market prompted some dealers to pour their funds into gold as it is deemed to be a lower risk asset.  

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