Daily Market News: Oil plunges below $20 for first time in 18 years

Adam Vettese, UK Market Analyst at eToro, has provided his daily commentary on traditional and crypto markets for March 30, 2020. 

The price of US crude oil dipped to an 18 year low on Sunday, below $20 a barrel, after another weekend of headlines documenting the continued spread of the coronavirus pandemic. The ever bleaker outlook on global energy demand is being compounded by the ongoing Saudi-Russia price war, piling pressure on the oil price. Whilst the dip below $20 was brief, unless we see some material change in the situation, we may well see it challenged again. Demand has been further hammered as global aviation grinds to a standstill, with UK based easyJet the most recent airline to announce the grounding of all flights.

This is a historic price collapse, and it is not done yet as the system physically runs out of places to put all the oil,” said one former Obama administration energy adviser.

While markets posted a double-digit gain last week thanks to a $2trn stimulus package coming to fruition and new measures taken by the Federal Reserve, investors are now once more focused on the rapid progress of Covid-19. Despite the huge sums already spent to prop up the economy, US politicians are already reportedly looking ahead to the next potential spending package to combat the economic fallout from the pandemic, which may be even bigger than the last. On Sunday, President Trump — having said repeatedly that he wanted to open the economy back up as soon as Easter — announced that he was extending his administration’s social distancing guidelines through to the end of April. Those restrictions include instructing people to avoid nonessential travel and large gatherings, but individual states and cities have implemented their own, often tougher, restrictions as well.

Friday sell-off at end of double digit week for US stocks

The major stock indices broke their first multi-day winning streak in a month on Friday, sinking by up to 4%, with investors taking profits from the week as the coronavirus situation continues to get worse in the US. Per the Centers for Disease Control and Prevention, the US now has more than 120,000 cases with over 2,000 deaths, making it the country with the highest number of confirmed cases worldwide.

The Dow Jones Industrial Average fell 4.1% on Friday, dragged lower by names including Boeing and Chevron, which both sank by around 10%. Boeing in particular had delivered a stellar week, gaining more than 70% despite Friday’s sell-off; although it remains down 50% year-to-date. For the whole of last week, the Dow climbed 12.8%, despite figures showing a record 3.3 million Americans signed up for unemployment benefits last week, beating the previous record by more than four times.

Investors resumed buying government bonds on Friday too, taking the yield on the 10 year treasury below 0.7% after a week where it had been hovering around the 0.8% mark. Investment firm T. Rowe Price noted in a Friday note that the Fed purchasing treasuries and expanding lending facilities “aided market functioning” and helped push yields lower. The Fed also announced that it will be buying up corporate debt, helping to ease investor fears about the risks posed by corporate bonds.

  • S&P 500: -3.4% Friday, -21.3% YTD (+10.3% last week)
  • Dow Jones Industrial Average: -4.1% Friday, -24.2% YTD (+12.8% last week)
  • Nasdaq Composite: -3.8% Friday, -16.4% YTD (+9.1% last week)

Rising sterling holds back FTSE 100’s rally

London-listed shares followed a similar pattern to their US counterparts last week, although the FTSE 100’s rally was pegged back to 6.2% as the value of sterling steadily rose over the course of the week. Having lagged significantly in recent weeks, the more domestically focused FTSE 250 gained 8.7%, although its year-to-date loss is still greater than 20%. One of the major coronavirus headlines in the UK on Friday was that both the Prime Minister and Health Secretary have contracted the virus, following weeks of criticism that the government failed to roll out stricter lockdown measures sooner.

In Friday’s sell-off, cruise firm Carnival, oil giants Royal Dutch Shell and BP, and banks including Barclays were among the FTSE 100 firms that had a rough trading session, with the index falling 5.3% overall. Along with other banks, Barclays has begun waiving charges and offering greater flexibility to its customers, a substantial number of whom are facing disruption to their incomes. Barclays is automatically waiving interest on all unauthorised overdrafts and is offering residential mortgage customers payment holidays of up to 90 days. In the FTSE 250, Royal Mail was one of the biggest fallers on Friday, sinking 17.6% after suspending its dividend and announcing that its turnaround program will take longer than planned due to the pandemic.

  • FTSE 100: -5.3% Friday, -26.9% YTD (+6.2% last week)
  • FTSE 250: -4% Friday, -32.5% YTD (+8.7% last week)
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What to watch

Pending home sales data: On Monday, the US National Association of Realtors will report its February pending home sales figures. Economists are predicting that there will be significant pullback after a 5.2% bump in January. While the period being reported on doesn’t include the recent depths of the crisis, it may provide an early indication of how economic uncertainty is impacting the housing market, which had been performing strongly before the pandemic. The mortgage industry was a conspicuous omission from last week’s $2trn support package, and the industry is calling for help to prepare for a potential wave of borrowers unable to make their payments.

Texas manufacturing index: Also on Monday, the Federal Reserve Bank of Dallas will be delivering the March update from its Texas Manufacturing Outlook Survey, which aims to measure the state’s factory activity. While the big economic data release this week will be the March jobs report, investors will still be paying attention to any data point that can provide a temperature check on the economic ripples being spread by the coronavirus pandemic. Last Tuesday, IHS Markit’s manufacturing purchasing manager index for March sank below 50, indicating that the sector is now in contraction territory nationwide.

Will there be another round of stimulus?

The main lesson from the 2008 global financial crisis is the need to spend generously. With that in mind, US policymakers are already working on another round of stimulus to build on the $2trn ‘first step’ taken last week. For the next round, Democrats are expected to push for more money for assistance programs for workers, and to shore up employer pensions that are facing a shortfall, while Republicans would reportedly rather wait-and-see how the situation pans out. Top ranking Republican Senator Kevin McCarthy said late last week that he is “not sure we need a fourth package.” House Speaker Nancy Pelosi (a Democrat) contradicted him, stating that “we know that this cannot be our final bill. Once again, the situation is shaping up to be one that runs the risk of descending into partisan political infighting. Progress on whatever is coming down the pipeline is worth keeping an eye on, as markets reacted heavily to any news of progress or delays to the package that went through last week.

Crypto corner

The rally in cryptoassets has continued over the weekend and this morning, with all three making headway in early trading.

Bitcoin is up 6.5% at $6,284, rebounding off its low late last week below $6,000, while Ethereum is up 4.8% at $130 as it attempts to regain its recent peak just below $140. Meanwhile XRP is up 5.7% at $0.17.

The Netherlands is embracing blockchain to help in the battle against the coronavirus epidemic. More than 10 companies have joined the “Tech against corona” initiative and are providing their services free of charge to the government. The Dutch Red Cross is also accepting donations in bitcoin, joining their Italian counterparts who have already raised more than $20,000 in BTC.

All data, figures & charts are valid as of 30/03/2020. All trading carries risk. Only risk capital you can afford to lose.

This is a marketing communication and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been prepared without having regard to any particular investment objectives or financial situation, and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past performance of a financial instrument, index or a packaged investment product are not, and should not be taken as, a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared utilizing publicly-available information.

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