Morning Minutes 3/9/2020

Morning Minutes

Stocks and Oil Plunge amid Terrible China Data and Worsening Oil Price War

March 9, 2020
8:45 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

News flow has remained negative over the weekend. The disagreement over supply cuts between OPEC and Russia has exploded into a full-blown price war. Not only did the two sides not agree on additional production cuts, they also failed to agree on extending the existing arrangement on cuts which expires at the end of this month. Saudi Arabia slashed its oil price for Chinese buyers and is threatening to ramp up production with nearly 2 mmbbl/d of spare capacity. Oil prices plunges overnight with Brent Crude falling 30% at one point. Currently, WTI and Brent are down a still whopping 21-22% overnight, trading near $32.00/bbbl and $35.00/bbl respectively.

Meanwhile, coronavirus outbreaks and government responses continue to dominate weekend headlines. China reported terrible trade numbers with its trade surplus for February falling to $7B in February from $47B in January as exports plunged 17.2% over year, worse than the 14.2% drop the street had expected. Despite this news, China-sensitive markets have dropped less than others overnight, Hong Kong fell 4.2% overnight, Shanghai fell 3.0% and copper is down 3.4%.

Stock markets around the world have been under pressure overnight with investors running for the exits, particularly in Italy where the FTSEMIB has plunged 10.1% today. The FTSE, DAX and CAC are all down about 7%. In Asia Pacific trading, the resource-sensitive Sydney market fall 7.3%, while Tokyo fell 5.0% and Soeul fell 4.1%.

Capital continues to flow into defensive havens. The Japanese Yen spiked 2.9% against USD which is a huge one-day move for a currency. Bond prices also continue to spike upward with the US 10-year treasury falling to another record low below 0.5%. Gold touched $1,700/oz overnight before slipping back toward $1,675 which is up about 0.3%. In other currency action, the Euro is up 1.3%, while the Canadian Dollar is down 1.6%. The Loonie appears to be buckling under pressure from the oil price crash as Canadian housing starts (210K vs street 205K) were supportive.

US index futures are currently down about 4.8%. Dow futures are down 1,255 points currently, near 24,500 which has breached last month’s intraday lows. It’s a lighter week for economic data so investors may spend the week focused on the response of governments to coronavirus, both in terms of trying to contain outbreaks, but also on calls for more fiscal stimulus and help for industries and economies most impacted. Even through three central banks cut interest rates last week, the pressure remains on central banks to bring in more monetary stimulus ahead of Thursday’s European Central Bank meeting.

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