US Stocks Slip Due to the Continuing Slump of Crude Oil

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Stocks slump as gold, oil gain

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Sit Fixed Income Advisors’ Bryce Doty discusses the declining yields on U.S. Treasuries as Apple and Walmart are seemingly affected by the coronavirus outbreak.

U.S. stocks closed lower on Wednesday but off the worst levels of the session as investors rotated some money into gold and oil.

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The selling pushed the S&P 500 and the Nasdaq Composite off record highs and the Dow Jones Industrial Average lost over 128 points but came back from a 300 plus point drop.

Ticker Security Last Change Change %
SP500 S&P 500 2671.85 +183.20 +7.36%
I:DJI DOW JONES AVERAGES 22679.99 +1,627.46 +7.73%
I:COMP NASDAQ COMPOSITE INDEX 7923.562967 +550.48 +7.47%

As stocks saw a shakeout, oil and gold moved higher.

The yellow metal rose to $1,622 an ounce, its highest in almost seven years. West Texas Intermediate crude oil was also higher at $53.78 a barrel.

U.S. Treasurys rallied, pushing the yield on the 10-year note down 5.6 basis points to 1.514 percent.

Investors took in comments from Fed Vice Chairman Richard Clarida who told CNBC the market was too aggressive in pricing in a Fed rate cut later this year which investors including Keith Fitzgerald of Money Map Press cited as the catalyst for the dip in equities.

Ticker Security Last Change Change %
USO UNITED STATES OIL FUND L.P. 5.49 -0.41 -7.03%
GLD SPDR GOLD SHARES TRUST – EUR ACC 156.69 +4.04 +2.65%

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Fears over the coronavirus also remain front and center for global investors.

The People’s Bank of China cut its loan prime rate 10 basis points to 4.05 percent in a move designed to help cushion the Chinese economy from the damage caused by the coronavirus outbreak.

China’s National Health Commission said at least 74,576 people in the country have been sickened by the coronavirus outbreak, which has killed 2,118. The number of cases in South Korea, which reported its first death due to the virus, more than doubled to 82.

Procter & Gamble and Norwegian Cruise Line Holdings were among the U.S.-based companies to warn Thursday that the coronavirus would hit their bottom lines.

Meanwhile, Norwegian Cruise Line Holdings reported better-than-expected fourth-quarter results and warned the coronavirus outbreak will put a dent in its bottom line.

Ticker Security Last Change Change %
PG PROCTER & GAMBLE COMPANY 118.23 +3.15 +2.74%
NCLH NORWEGIAN CRUISE LINE HOLDINGS LTD. 10.05 +1.59 +18.78%

Elsewhere, Morgan Stanley reached a deal to buy online broker E-Trade for $13 billion in stock, marking the largest takeover by a Wall Street bank since the financial crisis.

The private-equity firm Sycamore Partners has agreed to buy a controlling stake in L Brands’ Victoria’s Secret for $525 million. Chairman and CEO Leslie Wexner will step aside once the deal is completed.

Ticker Security Last Change Change %
ETFC E*TRADE GROUP (E*TRADE BANK AG) 37.78 +3.49 +10.18%
MS MORGAN STANLEY 37.22 +3.37 +9.94%
LB L BRANDS INC. 12.63 +1.29 +11.38%

Meanwhile, shares of space-tourism venture Virgin Galactic were lower for the first time in nine days. Shares were up 223 percent this year through Wednesday.

Ticker Security Last Change Change %
SPCE VIRGIN GALACTIC HOLDINGS INC. 14.46 +2.27 +18.62%

On the earnings front, ViacomCBS posted a 3 percent drop in revenue in its first earnings report since the two media companies merged late last year.

Six Flags Entertainment lost $11.2 million in the fourth-quarter as park admissions, spending on food and merchandise and sponsorships declined.

Ticker Security Last Change Change %
VIAC VIACOMCBS INC. 13.98 +1.55 +12.47%
NCLH NORWEGIAN CRUISE LINE HOLDINGS LTD. 10.05 +1.59 +18.78%
SIX SIX FLAGS ENTERTAINMENT 12.72 +2.04 +19.15%

In Europe, Britain’s FTSE was down 0.2 percent while Germany’s DAX and France’s CAC were off 0.6 percent and 0.5 percent, respectively.

Asian markets ended mixed with China’s Shanghai Composite gaining 1.8 percent and Japan’s Nikkei adding 0.3 percent. Hong Kong’s Hang Seng slid 0.2 percent.

Crude Oil Weekly Forecast: Deal or No Deal – Oil Prices Continue to Slump

Crude Oil Week Ahead Forecast: Neutral

  • OPEC proposal of 1.5 million barrels per day production cut fails to materialize
  • Russia are currently refusing to back any further output cuts.

Crude Oil Roiled by Coronavirus Epidemic

A game of brinkmanship between OPEC and Russia over new output cuts failed to materialize today . OPEC had proposed cutting oil production by 1.5 million barrels per day until the end of the year, yet Russia refused to back the cuts, instead pushing for an extension of the current level of production. OPEC’s proposal needs to have the backing on non-OPEC producers, including Russia. The breakdown in talks lead to oil declining over 10 percent Friday, the largest drop since 2020.

The continued spread of coronavirus is hammering demand for oil and this is unlikely to change in the months ahead. Chinese data showed economic activity slumped in January as businesses and factories shuttered and the economic malaise is spreading with global supply chains creaking and breaking, dragging economies across the world close to, or into, recession. A raft of central banks have either cut interest rates in the past week or are considering cuts before or at their next policy meetings in an effort to boost growth, but financial markets are ignoring this continued liquidity flush and continue to spiral lower.

Crude Oil Prices Slip As US Stock Build Puts EIA Data In Urgent Focus

Crude Oil and Gold Talking Points:

  • Crude oil prices were steadier in Asia but still crept down
  • They were hit in the US session by news that stockpiles rose sharply last week
  • Gold was quite firm despite strong US economic numbers, as Brexit returned to the forefront of market concerns
Change in Longs Shorts OI
Daily 7% 0% 5%
Weekly -29% 46% -19%

Crude oil prices steadied in Asia on Wednesday but remained essentially subdued following news of a surprise US stock build in the previous session.

Inventories rose by 4.7 million barrels in the week to December 13, to 452 million, according to the American Petroleum Institute. The market had been looking for a drawdown of more than a million barrels.

Still, US crude prices remain above the psychologically important $60.00/barrel point, if only now by a whisker. The market remains supported by hopes for a trade deal between the US and China which could see big increases in forecast energy demand. However, investors are well aware that substantive settlement, as opposed to mere formalized truce, will be some way off if it is achievable at all.

For now, those worries may take a back seat as the market looks to more stockpile numbers from the Energy Information Administration. They’re due later Wednesday.

Crude Oil Technical Analysis

Prices remain within a well-defined weekly uptrend channel which has endured since the end of September as the markets anticipated, and then got, commitments to deeper production cuts from traditional producers .

However, prices will need to get sustainably above the $62 mark if they’re to revisit the trading band which saw them reach for April’s peaks in the $66 region. This could be a big ask as markets thin out for the holiday season but it seems at least that oil is headed into that season with the bulls in overall control.

Gold prices held up through the Asia Pacific session. Strong US numbers from Tuesday failed to support regional stocks as investors worried that the Brexit deadline proposed by the UK government could increase the chance that the country will break away from the European Union without a deal.

US manufacturing expanded sharply last month, while housing numbers rose more strongly than expected as did housing construction permits. Investors remain wary of progress in trade talks and Brexit, however. While they are, gold seems unlikely to materially retreat.

There are a couple of likely global risk events coming up which may move the gold market on Wednesday. UK consumer price inflation figures are coming up. They’re expected to hold steady. New European Central Bank President Christine Lagarde is due to speak, with markets still trying to get a steer on her style and intentions as she takes over from the long-serving Mario Draghi.

Gold Technical Analysis

On their daily chart, gold’s modest uptrend still looks safe enough.

However, a look back a little finds prices actually quite neatly corralled in a broad range between the first and second Fibonacci retracements of their rise up from the lows of May to the peaks of September.

Despite the clear underlying near-term bullish pattern here, the downtrend from those peaks remains very much in place. This market may not see a decisive break either way until new year but, barring bad news on the trade front, it would not be surprising to see that downtrend reassert itself.

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