By Lorcan Roche Kelly
Oil plunged anew to the lowest level since 1999, with West Texas Intermediate for May delivery dipping below $14 a barrel this morning. While much of the drop is because that contract expires tomorrow, leading to extra volatility, the fundamental challenges facing the oil market can be seen everywhere. Producers in Texas are getting as little as $2 a barrel for their output at the moment as fast depleting storage is becoming a major issue for buyers in a world where demand has rapidly disappeared. WTI for June delivery was trading close to $23 a barrel and a similar Brent contract was at $27.
Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi said that both sides are close to a deal on more funding for the small business aid program. The proposed package, which could be as large as $500 billion, would also have money for coronavirus testing and help for hospitals. It is hoped that Congress can pass the measures before the end of the week. The moves come as the outlook on the spread of coronavirus remains mixed, with cases continuing to drop in some countries, while others have seen a jump. In the U.S. the level of testing needed to reopen the economy has become a key point of disagreement among experts and the White House.
The advice from one money manager is for investors to simply ignore the current earnings season as there will be little information from companies on how the economy will get back on its feet. Northern Trust Corp.’s Jim McDonald says he remains bullish on U.S. stocks as he sees the mammoth fiscal packages from Washington will be enough to offset demand-destruction from the lockdown. The effectiveness of that stimulus will be critical to his thesis, with Goldman Sachs Group Inc. predicting that S&P 500 listed companies will slash their spending by 33% this year. International Business Machines Corp., Halliburton Co. and Equifax Inc. are among those reporting earnings today.
Global equities are off to a slow start to the week, with the collapse in oil prices weighing on investor sentiment. Overnight, the MSCI Asia Pacific Index slipped 0.7% while Japan’s Topix index closed 0.7% lower. In Europe, the Stoxx 600 Index was 0.1% higher at 5:50 a.m. Eastern Time as investors favored defensive stocks. S&P 500 futures pointed to a drop of more than 1% at the open, the 10-year Treasury yield was at 0.635% and gold was unchanged.
It is a quiet start to the week on the economic data front. The Chicago Fed National Activity Index at 8:30 a.m. — which is expected to have its lowest print since early 2009 — is the only scheduled release in the U.S. this morning. The Federal Reserve’s massive dollar liquidity program continues with three operations totaling $1.5 trillion today. More information on testing and the White House plans for reopening the economy may be revealed at the daily task force press conference later.