Shares rise, UK vaccine, Netflix earnings & oil 2-decade low
07:47 am BST | April 22nd, 2020
After big slides yesterday caused by the turmoil in oil markets, things look a little brighter on Wednesday. European shares are pointed higher. On the face of it, stock markets have held up remarkably well, given that we just witnessed oil turn negative. The FTSE 100 dropped just 2 ½ % this week (through Tuesday) while the DAX lost 3 ½%. Both indices remain within a steady 3-week price range. If you’ve survived negative oil, you can survive oil, making double-digit declines today. It’s not to downplay the truly shocking events in oil markets, but nobody believes the long-term value of oil matches current prices.
Vaccine & Reopening
The FTSE 100 is set for a higher open with optimism bolstered by human trials beginning for a coronavirus vaccine. Oxford University thinks the vaccine they are developing has an 80% chance of success. Corporate partnerships will probably be needed for any vaccine. UK pharmaceutical shares might get their own shot in the arm.
Progress on the reopening of European economies was lost in the fog of oil madness but continues to be the main driver for optimism. Austria, one of the first to ease restrictions, plans to continue easing them according to Chancellor Sebastian Kurz. Austria has seen sub-100 virus case growth in the past three days in an early sign that its exit plan is working.
Netflix just reported a huge jump in subscriber growth. Paid subscribers grew by 15.8 million in the first quarter, blowing away even the most optimistic forecasts. The launch of Disney+ as a big new competitor this year looks to have, if anything, been a boost for Netflix. That’s been a long-running theme. When Amazon announced Prime Video, the same happened. New competitors just validate streaming for which Netflix is the biggest provider.
If anyone has asked the question since the pandemic, “Which company can benefit from the pandemic?” Netflix has been the GoTo answer. What else will people be doing while locked at home?! In some sense, Netflix shares have been like a hedge to market declines. That makes us a little nervous looking further out for the shares. When lockdowns ease and other sectors of the market gain strength, maybe some of the ‘Netflix hedge’ gets unwound.
Oil two-decade low
Brent crude prices dropped to below $16 per barrel early Wednesday, the lowest since 1999. WTI reached that milestone before plunging into negative territory. But a similar fate seems unlikely for Brent. The storage options for US crude (WTI) are a lot more limited. Still, the near term pressure on oil prices doesn’t look like lifting yet. Oil futures prices should turn around once demand picks up for the physical product, but that looks a couple of months away, given the gradual lockdown easing policies afflicting most economies.
Pound losses & Brexit
The onset of post-Brexit trade negotiations this week has coincided with a pullback in the pound. Sterling struck two-week lows against the euro and dollar yesterday. The risk of a WTO Brexit at the end of the year is an overhang for Sterling but probably doesn’t explain the losses this week. Sterling is perceived as a riskier currency and has dropped alongside risk sentiment this week. As long as stock markets continue the recovery, we’d expect GBP/USD to track toward 1.30.