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crude oil woes

Wall Street to Tumble at Open on Crude Oil Woes

April 21, 2020
US oil
US Oil in a bear market

Crude Oil price decline with futures spread widening at historic levels affect market mood, lingering cautions remain firmly rooted, preventing any chance for sharp gains. 

Summary: Global equities and major indices are seeing mixed price action as the trading session opened for the week. While the Chinese central bank delivered a cut back in key 1-year prime rate by 20-basis points as expected, broad-based investor sentiment retained caution over the economic outlook and lack of impact from government support programs resulting in dovish price action.

Europe, on the other hand, saw a relatively mixed performance. Reports of death count slowing down in Italy and Spain provided enough risk sentiment to keep major risk assets and indices supported for positive price action. However, key assets had to pare some of their early gains as reports of US crude oil storage space running out caused oil price and associated energy sector shares to pummel down sharply. Healthcare sector shares, on the other hand, traded positive as Novartis got the green signal from USFDA to conduct a randomized trial of malaria drug hydroxychloroquine against COVID-19

Precious Metals: Rare metals were initially muted given improved risk sentiment in the market despite mixed activity visible in equities. However, an intra-day decline of crude oil price resulted in rare metals reversing early declines while yellow metal regains positive price action, albeit capped below $1700. 

Crude Oil: Crude oil price is trading in red with sharp decline as reports of US Cushing storage and delivery point with a capacity of 90 Million barrels seems to be running out of space while a contract is set to expire tomorrow. This caused the comparative discount between front-month and second-month futures contracts to rise by nearly $10 – the widest ever recorded in history causing the sharp decline of oil price and energy sector shares with WTI futures testing lowest since 1998 at $11.04 per barrel. 

DXY: US Dollar index, which measures the strength of the greenback against six major rivals, continued to remain flat around the 99 handle. But price action in the forex market showed that US Dollar enjoyed a relatively higher demand against its peers as caution lingering in the overall market remains firmly rooted supporting safe-haven assets. 

On The Lookout: North American market hours is set to see equity and forex markets experience a flurry of activity, albeit lack of major updates from US and Canadian economic calendar schedule.

Reports of Cushing futures delivery point and crude oil storage space on the path to running out of space in a matter of weeks greatly affected energy sector shares. Given reluctance in US parliamentary proceedings to approve the US stocking its emergency reserves and crude oil output rising despite throttling efforts from oil producers, energy sector shares are expected to face sharp meltdown today. However, there are hopes for declines to be capped given developments surrounding COVID-19 proceeding in a favorable direction. On the earnings front, the US calendar will see the release of quarterly data from Halliburton, Equifax, and IBM. 

Trading Perspective: Amid lack of major impact economic updates and political developments, broad-based investor sentiment and local headlines driven cues are set to dictate volatility in Wall Street today while cues from an international market hint at dovish bias seemingly prevalent in the market. 

EUR/USD: The pair continues to trade flat as both currencies lack the strength to make a breakout. EURO remains supported by news of EU members finally coming to an agreement of 500 billion Euro worth support package while the firmly rooted cautious tone in market underpins USD. The pair is likely to continue moving range bound within 1.08 handle in immediately foreseeable future.

Please feel free to share your thoughts with us in the comments below. 

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