Five Things You Need to Know to Start Your Day
Just one day after the historic oil rout, prices plummet again. The U.S. approves home-testing kits for the coronavirus. And Australia’s central bank is scaling back its bond-buying policy after fledgling signs of success. Here are some of the things people in markets are talking about today.
The oil price collapse is deepening. Just a day after U.S. crude futures for May delivery plunged below zero for the first time ever, June futures plummeted 43%, closing below $12 a barrel in New York. A massive supply glut brought on by the pandemic and a worldwide shortage of storage space have sparked a rout that has shifted the entire forward curve for oil. The meltdown spreading across global oil markets has already wiped out tens of thousands of jobs and frozen billions of dollars in capital spending, and threatens to further cripple economies around the world already reeling from coronavirus-fueled lockdowns. Storage tanks, pipelines and tankers have become overwhelmed by a vast oversupply brought on by an unprecedented plunge in global fuel demand. It’s a “dangerous market to trade in right now,” said Pierre Andurand, founder of Andurand Capital Management, in a Bloomberg TV interview. The market needs oil production to fall immediately for prices to recover, he said.
The risk-off tone from Wall Street looked set to spill into Asia on Wednesday after U.S. equities retreated and Treasuries climbed as energy-market turmoil continues. Futures declined in Japan, Hong Kong and Australia. The S&P 500 lost more than 3% Tuesday as investors shrugged off a deal reached by the White House and congressional leaders on fresh spending to combat the impact of the coronavirus pandemic. Corporate earnings added to woes. Deep profit declines often come with no company insight into the remainder of the year and mounting signs that capital investment is set to plunge.
Cases of the coronavirus rose 5.7% in the U.S, the biggest jump since April 10, just as President Donald Trump said he supports a bill that would provide money for testing and hospitals, and the country approved the first home-testing kit for Covid-19. The U.K., meanwhile, will begin human vaccine trials Thursday. Singapore, once a standard bearer for taming the virus, reported more than 1,000 cases for a second day and will extend its partial lockdown for four more weeks; the city-state is also redeploying workers to adjust to the needs of the new pandemic era, with some jobs becoming redundant, and demand for others surging. There’s finally better news for Italy, where the number of recoveries almost surpassed new cases for the first time, and for Germany, where the country reported the smallest increase in infections this month. Still, Munich’s Oktoberfest festival was canceled for the first time since World War II — a sign that life won’t return to normal for months — and the Running of the Bulls in Pamplona, Spain, was also suspended. In India, scientists are saying that a herd immunity strategy could beat the virus in younger people, and may be a solution for poorer countries where the population is disproportionately youthful. Around the world, cases have topped 2.5 million and deaths now exceed 175,000.
Australia’s central bank is scaling back its policy of firehosing money markets, now that its bond-buying program has lowered interest rates across the economy and dislocations from the coronavirus have eased. Since March 20, when the program began, the Reserve Bank of Australia has purchased more than A$47 billion ($29.7 billion) of federal and state government securities. At first purchases were as much as A$5 billion a day, but the pace has declined to one-tenth that level more recently. The result is an early vindication for the Australian central bank’s decision to opt for yield-curve control — targeted bond buying aimed at guiding rates to a certain level — over quantitative purchases of a set numerical amount. The RBA also sought to soothe a government bond market that swooned with pandemic uncertainty, but has since stabilized somewhat. A key measure of money-market stress has eased to its lowest levels since 2007 after the RBA initiated its note purchases, some large daily liquidity injections and a A$90 billion facility to lend to banks.
Last month HSBC shocked investors by scrapping its dividend. For the Hong Kong Medical Association, a public health group instrumental in the fight against the coronavirus and a long-time investor in the city’s biggest bank, that meant it would lose 7% of its annual spending budget. With more than half its stock portfolio invested in the bank, the group is now pressured to trim spending, adding to strains in a city hurt by the virus outbreak and months of anti-government protests. The association is among investors in Hong Kong hurt by HSBC’s unprecedented decision to skip payouts at the behest of U.K. regulators. Particularly galling for some is that HSBC draws most of its profits from the Asian city, which isn’t restricting dividends, and where local retail investors — who own a third of shares — have propped it up in past downturns. The task now is for Chief Executive Officer Noel Quinn to boost the performance of a lender whose shares have trailed the Hang Seng Index in five of the past six years, once dividends are excluded. This at a time of mounting stresses while the virus outbreak disrupts Quinn’s plan to squeeze greater returns from the bank by cutting staff, exiting unprofitable units elsewhere and pushing more firmly into mainland China.
What We’ve Been Reading
This is what’s caught our eye over the past 24 hours.
- Trump says he will suspend legal immigration to the U.S. for at least two months.
- Nobody expects North Korea to implode without Kim Jong Un.
- China’s coronavirus diplomacy has finally pushed Europe too far.
- Virgin Australia’s demise shows that airlines have no time to lose.
- Musicians turn to streaming concerts from home to pay the bills.
- Major exporters are signing a pledge to avoid disruptions to global food supplies.
- Netflix posts explosive growth, but the boom may not last long.
©2020 Bloomberg L.P.