2020-04-06 • Updated
Probably, the main question most observers have now with respect to the stock market and S&P 500, in particular, is whether there will be another bottom or not. Fundamentals don’t give a simple answer.
On the one hand, the very fact that the market did not continue the plunge after March 20 but showed an almost instantaneous recovery from 2,180 to 2,630 is a good sign. It may be well interpreted that never before the US market has been as strong as now – fundamentally. Let’s remember the end of the year, January and Donald Trump’s speech in Davos: American economy was reporting multiyear expansion, record employment rates, worldwide loyalty to the USD, and the US as the economic, political and military centre of gravity. All of that couldn’t have been reached without the underlying healthy performance of the companies that comprise the S&P. In addition to that, the two-year discord over tariffs with China was over, and the path to the bright future was finally eyed. Therefore, in general, the US economy was delivering outstanding results in a world which (seemingly) found it’s general frame for prosperity.
An obvious strike at optimists camp is the unprecedented damage and the cross-continent scale of the virus infection which quickly grew from being an almost exclusively Chinese problem to the global pandemic. To the very last moment, the global community was reluctant to believe that borders will have to be closed, flights canceled, cities locked down, populations quarantined, and outdoor performance camps to be converted into hospitals. Once it did, the index went straight into the plunge.
The picture was significantly aggravated by an untimely dispute between Russia and Saudi Arabia over oil supply quantities, which the US refused to help to sort out on the spot. Now, with approximately 30% of global oil oversupply, petroleum tanks sitting full, and the price of oil pushing states to close the wells, observers comment that the moment to solve the matter may be lost. Aggravated by this, what previously looked like a possibility of a recession more often appears like a full-scale depression.
And lastly, the US never saw 6.5mln people applying for unemployment social benefits. Pretty ironically, the damage to the labor market in the US was as unseen as its strong indicators were right before the virus hit.
Last Thursday, Donald Trump urged Russia and Saudi Arabia to sit at the negotiations table. This week, a remote OPEC+ meeting is supposed to take place (hopefully). Although observers are pretty skeptical about the outcomes, the initiative itself and the confident manner with which Donald Trump was announcing that to the journalists are still somewhat reassuring.
Also, Spain and Italy seem to be seeing the levels of infections leveling out, with the US itself nearing the peak of the virus within the coming two weeks. China is already back to recovery.
Therefore, the general picture is no longer that universally dark as it was, say, a month ago. There are brighter spots in the outlook, and the S&P’s recovery seems not that far away. Very likely, the investors have already priced in the worst of the damage and are now looking for lighter scenarios.
Therefore, let’s keep the spirits uplifted, but the mind cold and observant: the trade decisions should not be affected neither by hope nor my desperation. Rather, by calculation. Next week will show us where the situation leads.
China has issued new oil product export quotas to allow oil companies to send surplus barrels overseas, particularly Sinopec, which has the highest volume among quota holders. While the exact quota volume remains undisclosed, oil companies are forecasted to export approximately 3.5 million metric tons of clean oil products in September, a 10% increase from August.
Thanks to the incredible advancements in horizontal drilling and fracking technology, the United States has experienced a mind-blowing shale revolution. They've become the heavyweight champion of crude oil production, leaving Saudi Arabia and Russia in the dust. They even turned the tables and became net exporters of refined petroleum products in 2011.
Oil prices rebounded slightly on Friday but are still expected to show losses for the week due to concerns about slowing growth in the US and China. US crude futures rose 2.7% to $70.41 per barrel, while the Brent contract increased by 2.5% to $74.33 per barrel.
The past several weeks have been a real triumph for the bulls in the oil market. The Brent spot price grew by 8.5% during the last month.
Gold prices are rising for three consecutive days ahead of the Federal Reserve (Fed) interest rate decision, which is expected to remain unchanged due to declining inflation and a positive economic outlook. Investors are keen on the Fed's interest rate guidance, fearing a hawkish stance that could trigger market risk aversion.
Amid concerns of a Chinese economic slowdown, reports of declining investment often overlook China's efficient investment strategy in emerging sectors for long-term growth. China has taken measures to stabilize foreign and private sector investments, like reducing the reserve requirement ratio to boost investor confidence.
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