U.S. crude gets crushed, share markets turn cautious
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[April 20, 2020] By
Marc Jones and Wayne Cole
LONDON/SYDNEY (Reuters) - Caution
recaptured world markets on Monday as a near 30% drubbing for U.S. WTI
crude oil kicked off a busy week of data and earnings that will drive
home the damage being inflicted by global coronavirus lockdowns.
Europe's stock markets made a groggy start, with the pan-regional
EUROSTOXX 600 <.STOXX> flopping back into the red as London's FTSE
<.FTSE>, Germany's DAX <.GDAXI> and Paris, Milan and Madrid all fell
more than 1%. [.EU]
E-Mini futures for the S&P 500 <ESc1> tumbled nearly 2% too, after Wall
Street had enjoyed a strong end to last week [.N], though even that
barely reflected the carnage in oil markets.
With some global storage facilities nearly full to capacity, the
'front-month' May benchmark U.S. crude contract <CLc1> was down $5.40,
or 29.5%, to just under $13 a barrel - the lowest since March 1999.
European benchmark Brent was down a more manageable 5% <LCOc1> at $26.60
a barrel, but it all pointed to the same problem - too much supply, not
enough demand.
"For oil there is a bit of a technical story (with storage), but still,
if energy consumption is down 30% and OPEC reduces supply by 10%, there
is still a large gap," said Rabobank's head of macro strategy, Elwin de
Groot.
Equity and other major markets however were still trading relatively
robustly and largely on the newsflow of the European virus numbers
gradually coming down, he added.
MSCI's broadest index of Asia-Pacific shares outside Japan
<.MIAPJ0000PUS> eased 0.2% in slow trade, pausing after five straight
weeks of gains.
Japan's Nikkei <.N225> fell 1.15%, but Chinese shares <.SSEC> edged up
0.4% as a benchmark lending rate was lowered to shore up the coronavirus-hit
economy after it contracted for the first time in decades.
U.S. President Donald Trump said on Sunday that Republicans were "close"
to getting a deal with Democrats on a support package for small
business.
The United States has by far the world's largest number of confirmed
coronavirus cases, with more than 750,000 infections and over 40,500
deaths, according to a Reuters tally.
The S&P 500 <.SPX> has still rallied 30% from its March low, thanks in
part to the extreme easing steps taken by the Federal Reserve. The Fed
has bought nearly $1.3 trillion of Treasuries alone, and many billions
of non-sovereign debt it would historically have never gone near.
"The question is, are markets underestimating this (virus) in terms of
the long-term impact on the economy. There will be damage and there will
be damage in terms of the consumer psyche," Rabobank's de Groot said.
DAMAGE
That damage should become all more clear this week with April global
purchasing manager data - seen as some of the most forward-looking
economic gauges - being published on Thursday.
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The German share price index DAX graph is pictured at the stock
exchange in Frankfurt, Germany, April 17, 2020. REUTERS/Staff/File
Photo
In a taster on Monday, Japan reported its exports down almost 12% in
March from a year earlier, with shipments to the United States down over
16%.
In the currency markets, the dollar gained broadly as the concerns about
global growth boosted the safe-haven appeal of the greenback and weighed
on risk-oriented currencies such as the Australian dollar.
Against a basket of its rivals <=USD>, the U.S. currency rose 0.2% to
99.98 and edged closer towards a three-year high of near 103 hit last
month and despite the latest trader positioning data showing bets
against the greenback being ramped up..
It gained about 0.15% on the euro and British pound and 0.2% on the yen.
It last bought 107.80 yen <JPY=EBS> and traded at $1.2450 per pound <GBP=>
and $1.0860 per euro <EUR=>.
Bond markets also suggested investors expected tough economic times
ahead, with yields on U.S. 10-year Treasuries <US10YT=RR> steady at
0.63%, from 1.91% at the start of the year.
"We are dealing with scales of declining economic activity that nobody
has seen before. The potential hit to GDP in the second quarter this
year will probably far exceed what we saw at the worst point of the
financial crisis," Capital Group economist Robert Lind said in a note.
Italy's borrowing costs rose meanwhile, heading back towards last week's
one-month highs, reflecting unease before a European Union summit later
this week over how to tackle the economic fallout of the coronavirus
crisis.
Selling pressure on Italian government bonds has returned in the past
week, undoing some of the benefits of the European Central Bank's
massive bond-buying scheme, after euro zone politicians failed to agree
to common debt issuance as a means of addressing the crisis.
Italian Prime Minister Guiseppe Conte used an interview with Germany's
Sueddeutsche Zeitung on Monday to repeat calls for the EU to issue
common euro zone bonds to demonstrate the bloc's solidarity.
"Thursday is the key day this week with the EU leaders' summit a
potentially big event for the future of Europe as they discuss how close
the region can get to joint issuance in the near future," said Deutsche
Bank strategist Jim Reid.
(Reporting by Marc Jones; Editing by Alex Richardson and Nick Macfie)
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