Swissquote Bank: WTI slips below $15 pb, equities mixed

April 20, 2020

By Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank

WTI crude slumped below $15 a barrel and pulled the energy-heavy ASX 200 more than 1% lower in Sydney, as the week kicked off on a mixed note elsewhere in Asia.

Stocks in China treaded water as the People’s Bank of China (PBoC) cut its key rate by 20 basis points to a record low of 3.85% as expected. This is the second time the PBoC cuts its key rate this year, and moving forward, Chinese authorities will stand ready to give the support the market needs to recover from the heavy Covid-19 crisis. The activity in China picks up at a better-than-expected pace, which, together with the monetary support, helps bettering the mood elsewhere in the world.  

FTSE futures first fell below 5800p mark than reversed losses along with oil prices. The FTSE 100 is poised for a positive start in London, but British energy stocks will certainly feel the pinch of an unexpected wave of sell-off in oil markets. With this last move, investors sent a clear message to the supply-side that they must ramp up efforts significantly, if they want to reverse the situation in this market.

Is buying oil a good idea, that’s the million-dollar question. Levels near $15 are appealing for investors wanting to jump on the back of a positive correction, but the downside risks prevail as the sell-side appears to be fiercer than many believed. In the medium term, however, there should be a significant upside correction in oil prices. Yet, how deep the prices could retreat before they rebound is uncertain. With little to improve the investor appetite in horizon, the price slump could extend toward the $10 a barrel.

In equities, we are headed toward a week of two-sided volatility. Earnings season remain on the back of investors’ minds, even though the gradual reopening of businesses after weeks of shutdowns give some comfort to investors that the figures that we are about to see should get close to a bottom. But most companies will likely refrain giving a guidance on their sales and earnings expectations for the coming quarters as the coronavirus outbreak and the unprecedented halt in activity fuzzy up the forecasts.

Gold legged down to $1670 an ounce despite mixed sentiment in Asia.

In the FX, the oil currencies were under the pressure of falling oil. The USDCAD extended gains above the 1.40 mark. Price retreats could be interesting dip-buying opportunities for a further advance toward the 1.4250/1.4350 area.

The USDJPY rebounded from 107.40 as Japanese exports slumped 11.7% y-o-y in March, more than 10.1% expected by analysts.

The euro was little changed against the US dollar. The single currency will likely remain under pressure below the 1.10 mark on political uncertainties amid last week’s Eurogroup compromise failed to convince the market. But the latest CFTC data shows that euro bulls continued buying the single currency last week, the net long speculative positions increased more than the previous weeks, hinting that investors are piling into the euro at the current price levels.

On the other hand, higher volume of debt issuance in Europe to cover the increased government spending weigh on European bonds, while Italy and France should continue pushing for issuing the joint corona bond at Thursday’s EU summit. An agreement on the corona bond seems little likely, European leaders are however expected to find a common ground on easy access credit line to the European Stability Mechanism (ESM), prolonged funding for the European Investment Bank (EIB) and on the founding of a temporary unemployment benefit scheme (SURE) to help EU nations to shoulder the disastrous consequences of the coronavirus-led economic shutdown.

The pound remains offered below the 1.25 mark against a softer US dollar. The death cross formation (50-day moving average crossing below 200-day moving average) should weigh on Sterling in the run-up to this week’s unemployment, inflation and sales data. Appetite should remain limited as Britain announced the extension of containment measures for three more weeks and showed teeth to the EU regarding its firm stance on the year-end Brexit deadline.