Morning Minutes 4/21/2020

Morning Minutes

Crude Drags Down Stocks For a Second Straight Day

April 21, 2020

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

With concerns that the world may be running out of places to store oil still running high, crude oil prices are under pressure again. With the May WTI contract near zero and expiring today, investors have turned their focus to the June contract which has dropped under $20.00/bbl toward $15.75 and is down 22.2% so far today. Brent crude is down 18.3% trading near $20.80.

Oil may remain active through the next couple of days with weekly API inventories due around 4:30 pm EDT today and weekly DOE inventories due at 10:30 am EDT tomorrow. Teck Resources announced a $474M impairment charge on its Fort Hills Oil sands project, confirmed last month’s production cut and indicated that a complete shutdown was considered. As earnings start to come out from more North American energy producers over the next several weeks, investors may watch for more news of exploration or production cuts.

US index futures are down this morning with retreats varying between a 1.0% drop for NASDAQ with its lower weighting in energy stocks, to 1.9% for S&P and 2.5%, or 582 points, for Dow futures. Overseas, the Dax is down 3.2%, the FTSE is down 2.3%, the Hang Seng fell 2.2% and Shanghai slipped 0.9%. Other markets are also being hit hard with copper plunging 5.5% and Gold dropping 2.0%.

Earnings season continues today with mixed results. IBM beat the street on earnings last night ($1.84 vs street $1.80) but withdrew its 2020 guidance amid economic uncertainty. Coca-Cola is down 3.2% in premarket trading after the company announced that April volumes worldwide are down 25% with movie theatres, restaurants and stadiums closed due to COVID-19. Stockpiling in March helped to boost Q1 EPS above expectations ($0.51 vs street $0.44) so some of the April decline may also be due to sales having been pulled forward. Insurer Travelers reported disappointing results with EPS of $2.62 falling short of the $2.85 street estimate. Lockheed Martin, on the other hand, beat the street on EPS ($6.08 vs street $5.80. After the close today, results are due from Netflix, Snap and Texas Instruments.

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