Continued concerns about demand, as well as worries regarding storage facilities, triggered another brutal fall in the oil market yesterday.
The WTI June contract settled more than 40% lower on the session, while the Brent crude June contract dropped 28%.
The rout in the oil market heavily influenced other markets yesterday as the massive declines in the energy spooked dealers. The major stock markets in Europe endured big declines. The FTSE 100 almost lost 3%, while the DAX 30 and the CAC 40 fell by 3.99% and 3.77% respectively.
Even though oil was at the forefront of traders’ minds yesterday, the major oil stocks such as BP, Royal Dutch Shell and Total were not the largest fallers on the session. It was a broad-based sell-off as banking, mining, retail and travel stocks all largely ended the day in the red.
US stock markets fell too as the shocking declines in oil rocked investor confidence. President Trump announced his intentions to provide support for the energy industry. The collapse in the price of oil could prompt bankruptcies, and the ripple out effect has the potential to be disastrous, as loan defaults would surge. The remarks from the US leader failed to lift sentiment in the big oil stocks. The Senate approved a $484 billion relief programme - $360 billion is earmarked for the Paycheque Protection Programme, while $60 billion will be provided for loans to small businesses. Funds will be spent on hospitals and Covid-19 testing, too. The package might be approved by Thursday. Should the schemes get signed off, they should assist the economy, but dealers shrugged off the announcement from the senate last night.
The pain in oil spilled over into the metals market. Copper, silver, palladium and platinum all racked up large losses. There was a feeling that demand for all natural resources will come under pressure in the months ahead. In late 2015, there was a rout in commodities, and that sparked fears about deflation. With the way things are going in commodities these days, we might hear deflation being mentioned.
Stock markets in Asia lost a small bit of ground overnight as confidence in equities remains low amid the volatility in oil, paving the way for a muted start to the European session.
The CMC EUR index outperformed yesterday. The single currency has been helped by the slide in the pound in the past few days. The UK has extended its lockdown restrictions until at least 11 May. The fact the government has prolonged the restrictions ultimately means the economic pain will be prolonged, too.
The euro was also given a boost by the impressive U-turn in the German ZEW economic sentiment report. The April reading was 28.2 – the highest since July 2015 – and keep in mind the March level was -49.5, the weakest in over four years. The massive reversal in sentiment seems excessive seeing as Germany only reopened certain businesses this week, but then again the easing of restrictions could be viewed as light at the end of the tunnel.
Gold lost a little ground yesterday as the move higher in the US dollar put pressure on the metal. Whenever traders are in risk-off mode, gold typically does well as it is considered to be a lower-risk asset. On the other side of the coin, the firmer greenback mostly likely prevented the asset from moving into positive territory. Despite the recent negative move, gold remains in a wider upward trend, and a break above the $1,700 mark might put the recent highs back on the radar.
Not all companies are suffering on account of the pandemic. Netflix’s first-quarter numbers last night proved that some firms are performing well during lockdowns. The streaming service added 15.77 new paid subscribers to its service in the last three-month period, which smashed analysts’ forecasts of 8.2 million. EPS were $1.57, undershooting the $1.65 consensus estimate, while revenue was $5.76 billion – in line with estimates. The company cautioned that viewership figures are likely to taper off when the social distancing restrictions are lifted. Netflix’s in-house productions have essentially ground to a halt due to the coronavirus crisis, so down the line, there will be a drop-off in new content.
At 7am (UK time), the UK will post the inflation figures for March, and economists are expecting 1.5%, which would be a drop from the 1.7% posted in February. The core reading is deemed to be a better gauge of underlying demand. The core reading is tipped to be 1.6%, which would be a dip from the 1.7% posted in the previous reading.
Canadian CPI is tipped to tumble from 2.2% in February to 1.2% in March. The report is due out at 1.30pm (UK time).
The Energy Information Administration report will be in focus given the volatility in the oil market this week. US oil inventories are tipped to be 16.4 million, while gasoline stockpiles are anticipated to be 3 million barrels. Oil has seen huge falls this week, and that was partially because of weak demand fears and concerns about storage, so a big build in energy stockpiles might spark another leg lower in oil. The update will be posted at 3.30pm (UK time).
EUR/USD – while it holds below the 100-day moving average at 1.1020, the currency pair could lose further ground. Support might be found at 1.0768, and a break below it might pave the way for 1.0636 to be tested. A move through 1.1020 might put 1.1147 on the radar.
GBP/USD – has been in an uptrend since late March and resistance might come into play at 1.2647 – 200-day moving average. Beyond that metric, the 1.2800 region might act as resistance too. A move lower from here might see it target 1 2165.
EUR/GBP – has been pushing lower since mid-March and should the bearish trend continue it might target 0.8621 – the 100-day moving average. A rebound might target 0.8865 or 0.9000.
USD/JPY – is in a negative trend and further losses from here might see it target 106.91. A move through 106.91 might put 106.00 on the horizon. A move above 109.38 could see it target 110.00.