21st April 2020 - Oil crashes into negative territory for the first time in history


Good morning

OVERNIGHT DATA AND HEADLINES


  • Traders fled from the expiring May U.S. oil futures contract in a frenzy, sending the contract into negative territory for the first time in history, as barely any buyers are willing to take delivery of oil barrels because there is no place to put the crude. May U.S. crude futures plunged to a depth never before seen, settling on the day at minus $37.63 a barrel, a decline of some 305%, or $55.90 a barrel. Prices set a low of negative $40.32. With demand down 30% worldwide due to the coronavirus pandemic, and the main U.S. storage hub in Cushing, Oklahoma expected to fill up in a matter of weeks, very few want to be stuck with oil barrels that they have to take delivery on at some point during May. Available storage space is dropping fast at the Cushing, Oklahoma hub, where physical delivery of U.S. oil barrels bought in the futures market takes place. Four weeks ago, the storage hub was half full - now it is 69% full, according to U.S. Energy Department data. 

  • Plunging U.S. crude oil prices pulled global equity markets lower, kicking off a busy week of data and earnings that will further reveal the economic damage of the coronavirus pandemic.

  • Wall Street tumbled after U.S. crude futures turned negative for the first time in history, underscoring the chaos the coronavirus outbreak has unleashed on the global economy. Dow Jones dropped 2.44% to end at 23,650 points, S&P 500 lost 1.79% to 2,823, Nasdaq dropped 1.03% to 8,560.

  • Italian Prime Minister Guiseppe Conte has repeated calls for the European Union to issue common euro zone bonds to demonstrate the bloc's solidarity in tackling the coronavirus crisis. Conte said in an interview to be published in Germany's Sueddeutsche Zeitung on Monday that issuing such bonds was not about socialising previous or future individual Italian debt. Conte said Germany and the Netherlands must change their views to signal that Europe speaks as one, adding he wanted the joint bonds to be specifically applied and limited in time.

  • Virgin Australia is poised to enter voluntary administration, with the cash-strapped airline unable to weather the coronavirus crisis because of its A$5 billion ($3.2 billion) of debt. Australia's second-biggest carrier, which has about 10,000 employees, last week suspended trading in its shares to continue talks on financial aid and restructuring alternatives. It had requested a loan of A$1.4 billion from the government and entered debt-restructuring talks with creditors. A formal announcement is expected on Tuesday, the sources said, confirming earlier local media reports. 

CURRENCIES

  • The USD edged higher as tumbling oil prices pressured oil-linked currencies - U.S. DXY index was up 0.08% at 99.97.

  • EUR gave up most of its recent gains, falling from 1.0896 highs down towards 1.0842 lows. Closed around 1.0860.

  • GBP retraced 0.51% from 1.2490 to a 1.2415 low.  

  • China’s CNY strengthened slightly into the close - onshore CNY fell 0.06% to 7.0770 but regained some strength down towards 7.0675.

  • USDJPY remained relatively steady overnight, trading a tight 20 point range between 107.60/107.80.

  • AUD fell 0.44%, trading down towards 0.6333 after a few attempts overnight to break higher at 0.6385/90 failed.

  • NZD also retraced lower from a 0.6086 high down towards 0.6030.

  • AUDEUR found gains up towards 0.5874 but fell late into the session towards 0.5830 lows.

  • AUDNZD dropped around 0.50% from 1.0550 down to 1.0485 lows.


TREASURIES

  • Safety-seeking investors drove U.S. Treasury yields slightly lower as falling oil prices led traders to discount inflation risks while Congress struggled to prop up economic activity amid the COVID-19 pandemic.

  • The yield on the benchmark 10-year note was down 4 basis points at 0.613. 

  • The two-year Treasury yield was down less than a basis point at 0.2017%.

  • The gap between yields on two- and 10-year Treasury notes was at 42 basis points, about 2 basis points lower than Friday's close.

COMMODITIES

  • Gold climbed as much as 1% after earlier hitting a more-than one-week low, with the collapse of U.S. crude oil prices to a record low hitting risk assets. Spot gold gained 0.6% to $1,695 per ounce.

  • Iron ore futures in China touched their highest in more than eight months after miner Vale  cut its production outlook because of the coronavirus outbreak. Spot prices of iron ore with 62% iron content for delivery to China gained by $0.50 to $87 a tonne. Another big gain was marked by Shanghai stainless steel futures, surging as much as 4.4% to 13,390 yuan a tonne, tracking nickel prices that rose on concern over tightness in ore supply. 

  • Nickel prices jumped to their highest in more than a month after Vale slashed its annual output target for the stainless steel ingredient due to the impact of the coronavirus pandemic. Benchmark LME nickel was 4% higher at $12,520 per tonne. Other metals: LME aluminium prices fell 0.2% to $1,504 a tonne, LME copper eased 0.6% to $5,179.50 a tonne.

  • U.S. crude oil futures collapsed below $0 for the first time in history, amid a coronavirus-induced supply glut, ending the day at a stunning minus $37.63 a barrel as desperate traders paid to get rid of oil. Brent crude, the international benchmark, also slumped, but that contract was nowhere near as weak because more storage is available worldwide. While U.S. oil prices are trading in negative territory for the first time ever, it is unclear whether that will trickle down to consumers, who typically see lower oil prices translate into cheaper gasoline at the pump. The May U.S. WTI contract fell $55.90, or 306%, to settle at a discount of $37.63 a barrel after touching an all-time low of -$40.32 a barrel. Brent was down $2.51, or 9%, to settle at $25.57 a barrel.

ECONOMIC CALENDAR TODAY


  • Australia - RBA minutes (looking for RBA guidance on the impact of the shutdown).

  • Australia - RBA Governor Lowe (speech titled Economic and Financial update) 3.00pm.

  • Europe - April ZEW survey of expectations (another soft print expected after an abrupt fall in March).

  • UK - Feb ILO unemployment rate (upturn in unemployment now expected).

  • US - March existing home sales (last 6.5%, forecast -6.9%). Sales set to seize up amidst disruptions from virus.


AUD THOUGHTS AND TECHNICAL ANALYSIS


AUD struggled to make further gains overnight as solid resistance ahead of 0.6400 capped prices, turning AUD lower towards 0.6332 lows which was fuelled over crude oil’s historic tumble below $0.  

Oil currencies stole the FX spotlight on crude's historic tumble below zero as the USD held onto marginal gains as early-session safe haven flows slowed to a trickle. Oil futures tumbled spectacularly, with the expiring front-month WTI down an astounding 320% at the lows to trade at less than minus-$40 per barrel, making the previous record low from 1986 at $9.75 appear quaint by comparison.

Markets markets will turn attention to the release of the RBA minutes (11.30am) and commentary from RBA’s Lowe with a speech titled ‘Economic and Financial Update’ scheduled at 3.00pm. 

The ABS are also scheduled to release a new weekly Australian payrolls employment and wages series. This data is based on high-frequency Tax Office information from firms’ payrolls systems. The data covers 99% of large and medium sized businesses and around 70% of small businesses. Given the Australia’s April labour force data are not due for another month, these new payrolls data will likely take on significant importance for a more timely read on labour market conditions.

Offshore, the main events expected this week will be Wednesday / Thursday April PMI releases and Thursday’s U.S. jobless claims and the EU meeting on pandemic relief spending and funding.

For the AUD, opens this morning at 0.6333 lows and trading just under the 10 DMA support (0.6341). The 10-DMA has been solid support over the last 3 weeks with any close lower likely to see further selling interest for the AUD down towards 0.6202 (21 DMA). Alternatively, a positive break through 0.6385/90 will see AUD longs bullish and target the 0.6445/50 resistance.



ACN: 615 699 888 | AFSL : 502711

Copyright © Navigate Global Payments All rights reserved.