Futures prices traded in contango last month, when the May contract settled negative ahead of its expiration, but the move into backwardation “shows that there is both strong demand for physical crude…” says Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.
What’s in Today’s Report:
- The Oil Crash and Contango Explained
- Why Is Copper Considered to have a PhD?
Stock futures are enjoying a solid 1%+ bounce this morning while international markets were mixed overnight as oil prices are relatively steady following a two day rout.
WTI crude oil futures, which turned negative on Monday, are wavering between gains and losses this morning but are importantly well above yesterday’s lows ahead of the key weekly EIA inventory report this morning (10:30 ET).
There are no Fed speakers today and just one second tiered economic report that shouldn’t move markets: FHFA House Price Index (E: 0.4%).
Earnings season is in full swing, continuing today with reports from: DAL (-$0.72), T ($0.84), BIIB ($7.74), CSX ($0.92), AA (-$0.29), KMI ($0.24), DFS ($1.80), and STX ($1.29).
Investors remain shaken by the historic surge in oil market volatility this week and energy will continue to be a primary focus of the market today.
And if the EIA print mid-morning is bearish (big inventory builds, resilient U.S. production, low refinery runs), and oil comes for sale again, stocks will likely struggle to maintain this morning’s bid.
What’s in Today’s Report:
- Five Keys to the Q1 2020 Earnings Season
- Oil Futures Point to Mid-Summer Economic Recovery
Futures are higher with most overseas markets today as COVID-19 case growth continues to slow in the U.S., economic data was better than feared overnight and investor focus is shifting ahead to Q1 earnings season.
In March, Chinese exports fell -6.6% vs. (E) -15.0% and imports were down -0.9% vs. (E) -8.0% suggesting the economic fallout from the coronavirus pandemic may be less than initially feared.
Today, there is one lesser followed economic report: Import and Export Prices (E: 3.1%, -2.0%), and two Fed officials are scheduled to speak: Bullard (11:05 a.m. ET) and Evans (12:30 p.m. ET).
But, the market’s main focus will be the start of Q1 earnings season, which is going to be extremely important as the corporate results and forecasts will provide much needed context on the outlook for 2020 EPS expectations in the coming weeks. Today, JPM ($2.49), WFC ($0.61), JNJ ($2.08), and FAST ($0.34) all report before the bell while JBHT ($2.22) will release results after the close.
What’s in Today’s Report:
- Tracking the Key Variable
- What Could the Government Do (and Would It Help)?
Futures are lower this morning as hopes for timely fiscal stimulus measures from the U.S. government to combat the negative impact of the coronavirus fade while a “Biden bounce” failed to materialize after the former VP had another strong showing in primary elections yesterday.
Overseas, European shares traded higher after an emergency rate cut by the BOE while Asian markets remained under pressure due to COVID-19 fears with the Nikkei falling into bear market territory overnight.
Today, there is one economic report to watch: CPI (E: 0.1%) while no Fed speakers are scheduled to speak. The only other potential catalyst on the calendar is a 10-Yr Note Auction by the Treasury at 1 p.m. ET that could move bond markets and subsequently, the stock market.
With limited market moving events on the schedule, investors will be looking for further details on the U.S. government’s plans to support the economy through the coronavirus outbreak as well as any further news about the confirmed cases/related deaths as well.
Technically speaking, a break either above yesterday’s highs or below yesterday’s lows in the S&P 500 will likely trigger a follow through move as the market is in a state of indecision and susceptible to a momentum based squeeze either way.
U.S. oil futures settled more than 10% higher on Tuesday, rebounding a bit a day after posting the largest percentage loss since 1991. Tuesday’s rebound for oil is “relatively modest” compared to Monday’s plunge, said Tyler Richey, co-editor at Sevens Report Research. “We could easily see a retracement higher in prices in the days and weeks ahead…Click here to read the full article.
“Trade war concerns are being offset by positive comments on the global economy by both Fed Chair Powell and OPEC’s Secretary General Barkindo…” said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.
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Oil futures sank 2.74% yesterday, with a large portion of the losses coming in the final hour. The catalyst for the decline was a collection of analysts’ estimates for this morning’s EIA report that started to come in showing more substantial builds in product inventories even though oil stocks are supposed to fall.
RBOB gasoline futures have been leading the way lower since they topped out on April 12. In fact, since that day, futures have only notched one single gain (that is three weeks with just one positive trading day). Gasoline futures now are within 3% of their 2017 lows, and if the downtrend continues that will be a headwind on the rest of the energy space.
Oil futures came within 1% of their 2017 lows yesterday and the momentum is clearly with the bears. Yesterday’s move was amplified by a “stop run” as futures broke through the March lows in the June contract. But in an encouraging sign of weakness, futures were unable to rebound.
On the charts, futures broke through a longstanding technical uptrend line that dated back to early August. That is another sign of technical weakness in the market.
In doing some cross-asset analysis yesterday, there was evidence that the inverse correlation between oil prices and long bond prices is resurfacing. As a reminder, for a period of time back in early 2016, long bond futures were trading almost exclusively off of the price of oil (specifically when WTI had a $20 handle). The reasons were twofold.
First, low oil prices are a drag on inflation readings, which would have dovish implications for Fed policy (long bond positive). Second, long bonds benefited from a safe-haven/fear bid as lower oil prices increased the risk of small producers defaulting on loans, many of which were issued by southern and central regional banks. Ultimately, contagion fears weighed on regional banks and the broader financial sector collectively. Now, it is not clear whether this is happening again as it was only one day of trading so far, but it is something to keep in mind going forward. If oil declines cause a sharp break lower in longer-term interest rates, that will weigh on stocks.
Bottom line, the fundamentals (rising US production and still-overflowing global stockpiles), technicals (new five-week lows), and market internals (bearish term structure) all continue to favor the oil bears right now, and the idea that we are in a “lower for longer” price environment still stands.
Oil and the rest of the energy complex is, however, near-term oversold, and we could see a volatile short covering rally given the right catalyst. Such a move would likely be short-lived, and if we were to see a continued move into the low $40s or even high $30s that would have serious implications for all asset classes (as in early 2016).
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