MORNING BID-COVID gloom drives pain down the oil futures curve

A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own.

The great oil collapse continues, but are stock markets starting to shrug that off? MSCI’s world stocks are flatlining near two-week lows and Asian shares have reversed early losses. U.S. futures are actually pointing higher following Tuesday’s 3% fall on Wall Street. Emerging-market equities gained 0.5%.

While a Reuters tally shows more than 2.5 million COVID-19 cases globally, another $500 billion in relief has come through for the U.S. economy and the governors of half a dozen states plan to reopen businesses. Restrictions are also tentatively being lifted in some other countries.

More stimulus is being rolled out, including a $26 billion package in South Africa. Mexico has offered a $31 billion deal and slashed interest rates by 0.5%. South Korea is readying a $32.4 billion relief fund. Turkey will likely cut rates, too. And in deals, Facebook invested $5.7 billion in India’s Reliance unit.

But Brent futures are following their U.S. WTI peer lower, falling to the lowest since 1999, below $16 a barrel. And if anyone thought negative crude prices were at an end with the expiry of the May futures contract, they may soon extend into June, which has fallen to around $10. Today’s EIA data on U.S oil inventories could deepen the gloom if it shows another rise on top of the 50 million barrels or so already added in April.

The problem is the sheer scale of demand destruction. OPEC supply cuts or policy stimulus can hardly address those, given economic activity could be restricted for weeks if not months, even after lockdowns lift.

Wall Street’s tech shares also felt the pain last night, slumping 4% as benefits from lockdowns for the likes of Netflix and Amazon may prove temporary. Netflix shares surged 12% when it reported first-quarter results after the close, but they quickly gave up those gains as the significance of its guidance sank in – it forecast that some of the 16 million subscribers added would cancel when they returned to work.

In Europe, focus is on the financial sector, with banks seen setting aside billions for potential loan losses and profit hits. Unicredit said it would write down loans for 0.9 billion. Insurers Hiscox and Beazley will pay up to $345 million to settle claims from travel and events cancelled due to COVID-19.

In other corporate news, ASM International widened its second-quarter sales outlook range, citing a risk of supply chain disruptions. Fiat Chrysler has drawn down on a 6.25 billion-euro ($6.79 billion) credit line. Akzo Nobel says sales decline will accelerate in the second quarter, Randstad sees a tougher second quarter, Telia’s first quarter lagged forecasts; Ericsson bucked the trend by beating first-quarter estimates. Gucci said it was premature to forecast how quickly China sales would rebound.

In the UK, John Lewis warned sales at department stores division could crash by 35% this year. Primark owner Associated British Foods has booked a 284 million-pound ($352 million) charge.

On currency markets, the dollar still reigns, though it has come off two-week highs against a basket of six currencies. Oil currencies have steadied – the Norwegian crown is flat after Tuesday’s near-2% loss and the Canadian dollar is in positive territory

The yen is up 0.2% and emerging-market currencies are near two-week lows as oil currencies feel the effect of cheaper crude. Sterling remained near two-week lows as Brexit risks started to make a comeback.

Bonds are feeling the potentially deflationary effects of oil’s collapse — five-year U.S, yields hit a record low and 10-year yields were near six-week lows. Japanese yields are at two- week lows. Italian 10-year yields flatlined at 2.17% after rising 22 bps on Tuesday. All eyes are on Thursday’s Eurogroup summit to see what kind of burden-sharing the bloc will agree.

+++ DIARY +++ Turkey central bank meeting Turkish consumer confidence Russian industrial output UK CPI/industrial output March Canada inflation March US earnings – Boeing, AT&T, Kimberley Clark, Tesla, ALCOA, Kinder Morgan

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