Oil price dives to 21-year low, Disney stops paying workers

The price of US oil has fallen to a low not seen since 1999 amid soaring global supply and a huge downturn in demand.

At one stage overnight the May futures contract for WTI, the US benchmark, was trading as low as $14.47 a barrel, having slumped over 18% in the last 24 hours. Brent crude was also lower, off 3% at $27.18, although it remains well above its recent low of $21.

On Friday, oilfield services giant Schlumberger said there could be worse to come for the industry. After announcing a first quarter loss of $7.4bn, moving to slash its dividend by 75% and signalling a round of job cuts, CEO Olivier Le Peuch said that the firm is prepping for a severe downturn. He said the second quarter will be more severe for the company than the first. Schlumberger cut its workforce in North America by 1,500 people in Q1 and said there will be more “structural change” to come in Q2. “Despite the recent agreements by the world’s largest oil producer to cut production, Q2 is likely to be the most uncertain and disruptive quarter that the industry has ever seen,” Le Peuch said.

Meanwhile, markets in Asia dipped Monday as the virus continues to spread across the globe. The Nikkei was off 1.2% while Hong Kong’s Hang Seng dipped 0.2%. Investors may be cautious ahead of a big week for economic data and corporate earnings.

Companies are still adjusting to the virus, and over the weekend Walt Disney Co announced that it will stop paying more than 100,000 employees this week — close to half of its workforce. The suspension of pay will save the firm as much as $500m a month, with its theme parks and hotels shut in the US and Europe. Disney is likely to end up under significant scrutiny for the move, which leaves its workers relying on unemployment benefits at the same time as the firm prepares to make a billion dollar plus dividend payment.

Late last week, it was also reported that Southwest Airlines has contacted union leaders to initiate talks about concessions such as pay cuts once the $50bn in federal funding allotted to bailout the airline industry is exhausted.

Tech heavy Nasdaq outperforms over week

Last week the tech heavy Nasdaq Composite outperformed the S&P 500 and Dow Jones Industrial Average by a substantial margin, which investment firm T. Rowe Price put down to gains from chipmakers, Microsoft and Apple in a Friday note. The index made substantial gains following reports of slowing Covid-19 infection rates in hard hit areas, and on data that showed promising signs for a treatment currently being trialed at a Chicago hospital.

It was also the first week of corporate earnings season, with several major financial names reporting. Banks JPMorgan Chase, Wells Fargo and Citigroup posted profit declines of 70%, 89% and 46% respectively. According to a note from investment firm John Hancock, analysts expect S&P 500 companies to report a 14.5% earnings decline once reporting season is over.

The economic data remained grim despite market gains, with US retail sales posting an 8.7% monthly decline for March, and US weekly jobless claims coming in at 5.2m, taking the total to 22 million for the past four weeks. Financial advice giant Edward Jones said that it is important to note the temporary nature of some of the dramatic economic numbers, and that monetary and fiscal stimulus efforts can help facilitate a recovery. “We think that bad economic news can coexist with a market rebound as investors expect an ensuing recovery,” the firm said.

S&P 500: +2.7% Friday, -11% YTD (+3% last week)

Dow Jones Industrial Average: +3% Friday, -15.1% YTD (+2.2% last week)

Nasdaq Composite: +1.4% Friday, -3.6% YTD (+6.1% last week)

FTSE 100 sinks further behind S&P 500 in 2020

UK markets posted a negative week, with the FTSE 100 down 1% and the FTSE 250 down 3.3%. London-listed stocks are now lagging a long way behind their US counterparts in 2020, with the FTSE 10 down 23.3% year-to-date versus the S&P 500’s 11% decline. Gains of around 3% on Friday for both the FTSE 100 and 250 helped to dampen the week’s losses, with rebounds in stocks including InterContinental Hotels Group, easyJet and Rolls Royce leading the way.

At the end of last week, lockdown restrictions in the UK were extended for at least another three weeks. The economy will not reopen until there is a sustained daily death rate drop and confidence that there is no risk of a second wave of infections. Over the weekend The Sunday Times published a damning report on the British Government’s handling of the early days of the pandemic. The report found that Prime Minister Boris Johnson missed several Cobra (the national crisis committee) meetings on the coronavirus and did not attend one until March 2nd. Instead of boosting emergency supplies during February, the UK shipped them to China, despite the last pandemic rehearsal in 2016 highlighting a list of equipment deficiencies.

FTSE 100: +2.8% Friday, -23.3% YTD (-1% last week)

FTSE 250: +3.1% Friday, -27.5% YTD (-3.3% last week)

What to watch

IBM: Tech firm IBM is down 10.4% year-to-date but has surged by more than 25% over the past month. The company is heavily involved in cloud computing, and investors will be watching closely for insight into how the firm might be benefiting from adoption of the technology since huge swathes of the global workforce are now working from home. Last year, IBM closed the $34bn acquisition of Red Hat, a leading provider of cloud software services, in order to create a next generation open architecture cloud platform. Analyst expectations for the firm’s earnings report on Monday have fallen over the past three months, from an earnings per share figure of $2.16 to $1.81. Five Wall Street analysts rate the stock as a buy, 12 as a hold and two as a sell.

Halliburton: Following Schlumberger on Friday, oilfield services firm Halliburton reports its first quarter earnings on Monday. As with its rival, the question will be focused on how severe any layoffs and restructuring will be, rather than whether there will be any. Analysts will also likely probe company management for their views on the recent oil production cut agreed by Opec and Russia. Halliburton stock has surged 50% over the past month but is still down 69% year-to-date. That decline has pushed the firm’s dividend up close to double digits, and the sustainability of those payments is likely to be a feature of the earnings call. Analyst perspectives on the stock have swung significantly in recent months. Three months ago, the firm had 25 buy or overweight ratings, three holds, and two underweight or sells. Now, there are 13 buy or overweights, 16 holds and one sell.

Cadence Design Systems: Software firm Cadence is up double digits year-to-date, and more than 40% over the past month, due to its involvement in the rollout of 5G. The $22bn market cap company provides chip design platforms and is aiming its services at 5G smartphone chipmakers. According to Zacks Equity Research, the high cost of failure for those firms is boosting demand for Cadence’s system design solutions, which is likely to have contributed to the company’s Q1 growth.

Bank bosses are preparing for a U-shaped recovery

Consensus is currently split on what the shape of the global economic recovery from the Covid-19 pandemic is going to look like. But one group of individuals who have demonstrated some form of agreement are the leaders of America’s largest banks. Wells Fargo CEO Charlie Scharf, Morgan Stanley CEO James Gorman, BNY Mellon CEO Todd Gibbons and Bank of America CFO Paul Donofrio (among others) all predicted negative GDP growth and elevated unemployment rates lasting into 2021. In other words, they are all planning for a U-shaped recovery rather than a V-shaped snapback. Gibbons and Gorman both defended their decisions to commit to no layoffs in 2020, with Gorman describing it as “one of the easiest decisions I’ve ever made.”

Crypto corner:

Cryptoassets paused for breath overnight following further surges in recent days. Having jumped back above $7,000 last week, Bitcoin is at $7,157 this morning, off marginally but holding on to most of its recent gains. Ethereum and XRP are also enjoying strong recoveries. Ethereum is back above $180 at $181.5 this morning, its highest level for five weeks, while XRP is up 1%, sitting just below its $0.20 mark.

The impact of Covid-19 is having varying impacts on mining projects around the world, with operations in Canada having been deemed ‘essential’ and permitted to continue, yet in places like Argentina they have been shut down. It comes as the space as a whole is being squeezed by the upcoming halving event, with many operations relying on a price spike to assist with paying off big hardware bills.

Elsewhere, Hong Kong’s first approved crypto fund aims to raise $100m. The bitcoin tracker fund by Arrano Capital, the blockchain arm of Venture Smart Asia is the first to be rubber stamped by the regulator that can give retail investors access to bitcoin.

All data, figures & charts are valid as of 20/04/2020. All trading carries risk. Only risk capital you can afford to lose.