Month: April 2020

Crude oil prices surged by 4% on the first session of the week after OPEC group and its global oil producing allies, had agreed to reduce output by 9.7 million barrels per day, which was the single largest output cut in history. The US, Brazil, Canada and other oil producers will contribute to another 5 million barrels cut on paper as their production declines.

Coronavirus Update:

Global cases: At least 1,846,680.
Global deaths: At least 114,090.
Most cases reported: United States (555,313), Spain (166,831), Italy (156,363), France (133,670), Germany (127,854).

Market Reaction:

Crude oil:

The well-expected oil cut agreement was finalised few hours before Sunday night’s opening, after a four-day marathon discussion between the OPEC group and its world’s largest crude oil producers. The main target of the agreement was to decrease the impact of the pandemic on global demand which dropped as much low as 30% or 30 million barrels per day according to energy experts.

The proposed 10 million cut agreement had been blocked since last Thursday after Mexico denied cutting its prorated share of 400k barrels per day. Eventually, Mexico won the diplomatic war by agreeing to cut only 100k ped day, dropping the final cut number to 9.7 mbpd.

Furthermore, the agreement put an end to the devastating “oil price war” between Russia and Saudi Arabia, which flooded the already oversupplied market with some extra million barrels of crude per day.

The deal:

According to the OPEC+ announcement, the 9.7 million barrels per day cut will begin on May 1st and will be extended until the end of June. The cuts will then taper to 7.7 million barrels per day from July through the end of 2020, and 5.8 million barrels per day from Jan. 2021 through April 2022. The 23-nation group will meet again on June 10 to determine if further action is needed.

Crude oil price reaction:

Despite the record size of the cut, the crude oil prices rallied only 4% after the Sunday night opening bell as investors felt that the agreed cut number was not large enough to combat the drop-off in demand.

The WTI crude oil price had even fallen at intraday lows of $22 after the opening bell before it bounced back to the current levels of $23.50 per barrel, while the Brent oil price is pricing near $32.50 per barrel.

Global Equities:

US futures fell by 1.5% on Monday morning on return from Easter, as investors believe that the OPEC+ deal would be insufficient to balance the huge drop in oil demand from the pandemic. The Dow Jones futures are pointing to a lower opening near 23.400 level, just below the one-month high of 24.000.

Asian Pacific stock markets moved lower this morning by more than 1% following the losses in US futures and the risk aversion sentiment. The Japanese Nikkei index fell 2%, the Kospi index -1.5% while many markets in the region including Australia will be closed for Easter Monday holidays.

Precious Metals:

Gold price rose to one-month highs, trading near the $1.700/oz level, Silver price traded above $15.20/oz, while the Palladium price surged 3% this morning. The precious metal prices had benefited from the negative global economic outlook caused by the pandemic and the massive monetary measures from their Central banks.

Forex Market:

Commodity currencies such as the Australian and New Zealand dollars moved lower this morning across the board as the OPEC+ deal failed to give investors any optimism about their economic outlook.

The Australian dollar pulled back from its monthly high of 0.69 against the Japanese Yen, currently pricing near 68.38 at the early European session. However, the pair holds most of its recent gains on hopes that the pandemic effects on the Australian economy would be eased after the massive monetary and fiscal measures been taken from the local government and Central bank.

Economic Calendar for April 13, 2020 (GMT+ 3:00):

Crude oil prices plunged by 10% on Thursday as energy investors were not impressed from the 10 million barrels per day production cut proposed deal between OPEC and Russia. In addition, the deal could be in trouble after Mexico refused to participate in the cutbacks and left the OPEC+ meeting without approving the deal.

The US stock markets rose by 1% yesterday, after the Federal Reserve announced a massive $2.3 trillion program to support the US economy from the pandemic fallout.

Volumes and volatility are expected to be thin today as major global financial markets have closed for the Good Friday Easter holiday.

Coronavirus Update:

Global cases: At least 1,595,350.
Global deaths: At least 95,455.
Most cases reported: United States (461,437), Spain (153,222), Italy (143,626), France (118,781), Germany (118,181).

Market Reaction:

Crude Oil: Major price reversal

The OPEC group and other countries including Russia reached an agreement on Thursday to temporarily cut 10 million barrels a day, or about 10 percent from normal production levels, in May and June. According to an OPEC statement, the cuts would be tapering to 8 mbpd for the rest of 2020, then would decrease to 6 mbpd from January 2021, which would continue through April 2022.

The WTI contract price settled at $22.76, posting -9.3% losses while the Brent slipped -4% at $31.50, finishing an extremely volatile session for the energy market yesterday. Both oil contract prices spiked by 12% at midday’s session reaching intraday highs of $28.36 and $36.40 per barrel respectively after early rumours that OPEC+ members were discussing a 20 mbpd cuts.

However, the oil prices erased all gains and closed with huge losses of -10% as investors were disappointed from the final proposed 10 mbpd agreement and the rejection of the deal from Mexico. Energy investors feared that the 10 mbpd cut would be too small and too late and it would still not be enough to combat the unprecedented demand loss of 25 mbpd from the pandemic.

Talks between the OPEC members and Mexico will continue Friday to reach a final agreement as Mexico was willing to cut only 100k bpd instead of the proposed 400k bpd from OPEC.

In addition, OPEC called on other major crude producers, such as the U.S, Canada, Norway, Brazil and others to cut their production by an additional 5 million barrels per day. Energy ministers from the Group of 20 major economies will organize for their own virtual meeting later today to discuss the proposed cuts.

Equities: Best week since 1974

The major US stock markets extended their impressive weekly gains by surging another 1.5% on Thursday. The Dow Jones index closed at 23.720 or 1.5% higher, the S&P 500 advanced 1.2% while Nasdaq closed 0.8% higher.

The S&P 500 surged 12% this week, which was its biggest weekly gain since 1974. After Thursday’s rally, the S&P 500 is up more than 25% from its March closing low.

Federal Reserve and US Jobless Claims

The Federal Reserve announced a further $2.3 trillion aid for Covid-19 on Thursday, including a pledge to provide support to risky corners of financial markets that have been hit the hardest by the fallout from the pandemic.

The Fed support came as U.S. jobless claims surged for a third-straight week, rising by 6.6 million to total about 17 million jobs lost in just three weeks.

Precious Metals: 3% rally

Gold and Silver prices surged over 3% on weaker the US dollar as a result of the Fed’s measures. The bullions found support also from the rise in US jobless claims and the ongoing pandemic uncertainty.

Forex Market: US dollar weaker across the board

The US dollar fell to weekly lows against major currencies after the Federal Reserve increased the supply of dollars in the market amid its massive new lending program. In addition, the rally in the US stock markets removed some safe havens flows for the greenback while the higher US jobless claims had also pressured the dollar index below the 100 level.

The weakness in the greenback together with the improved market risk sentiment, helped the risky currencies such as the Australian and New Zealand dollars to advance across the board. The AUD/USD was trading at 0.634 this morning, gaining more than 800 pips since it bottomed near 0.55 on March 19th on pandemic fears.

In addition, the Pound Sterling had also advanced yesterday against the US dollar, reaching fresh one-month highs near 1.25 level.

The Sterling was supported on reports, that the British Prime Minister Boris Johnson left intensive care following his hospitalisation for COVID-19 symptoms.

Economic Calendar for April 10, 2020 (GMT+ 3:00):

The global financial markets and crude oil prices extended on Wednesday their weekly gains on improved risk sentiment, amid signs of pandemic slowdown and ahead of the OPEC+ meeting. The US stock indices climbed after Senator Bernie Sanders dropped out of the 2020 US presidential race.

Coronavirus Update:

Global cases: More than 1,511,104
Global deaths: At least 88,338
Most cases reported: United States (429,052), Spain (148,220), Italy (139,422), France (113,959), and Germany (113,296).

Market Reaction:

Crude Oil:

Energy investors will be focused today on the well-expected OPEC and other global oil producing countries teleconference to discuss and decide on potential sizable joint output cuts to save the energy sector from the pandemic fallout. Major crude oil producing countries such as Saudi Arabia, Russia, US, Canada, Brazil and other OPEC group members were considering having a joint output cut between 10-15 million barrels per day, according to delegates.

WTI and Brent crude oil prices surged by 4% on Wednesday, finishing the day near $26 and $33.50 per barrel. The prices jumped during the last half hour of the session after comments from Algeria’s energy minister saying that he expected a “fruitful” meeting.

Global Equity Markets:

The US stock markets gained more than 3% last night after Senator Bernie Sanders dropped out of the 2020 presidential race in the USA, removing a political risk from Wall Street. Some of Sanders’ policy proposals, including Medicare for All, raised concern among several business owners and investors who feared taxes would go up under his presidency.

The Dow Jones index and S&P 500 indices gained 3.4%, to close at 23,433 and 2,750 respectively, while the Nasdaq Composite rose 2.6% to 8,090. It was the first time the Dow Jones index closed above the 23,000 level since March 13th, while it gained nearly 30% since it bottomed on March 23 amid pandemic fears.

However, the Dow futures were slightly lower this morning ahead of the release of the U.S. unemployment claims report and unemployment rate later today. Economists are expecting an increase of 5 million, which would build on the record-shattering prior two readings of 6.6 million and 3.3 million.
Asian-Pacific stock markets moved higher by 1% this morning following the overnight gains from Wall Street combined with the removal of travel restrictions in China’s Wuhan city after the 11-week quarantine.

Forex Market:

The Euro currency was the weaker across the board yesterday after the Eurogroup finance ministers failed to agree a joint measure on response to the pandemic.

The EUR/USD pair was trading near 1.0844 level this morning ahead of resumed Eurogroup talks with hopes to eventually agree a bailout deal.

The US dollar was stable yesterday, with DXY-dollar index holding above the key support level of 100, the USD/JPY traded near 109 level while the GBP/USD remained below 1.24.

Commodity currencies such as the Australian and New Zealand dollars were the strongest yesterday, getting support from the improved risk sentiment and the rising prices of crude oil and copper.

Economic Calendar for April 09, 2020 (GMT+ 3:00):