28 April - updates from our investment partners

  • 28th April 2020

Global equities rallied on Monday despite relatively little corporate or economic news flow.

What has happened

Global equities rallied on Monday despite relatively little corporate or economic news flow. The focus was on expectations that US states could reopen sooner rather than later as well as a recognition that many major European economies, such as France and Spain, start to return to work this week.

Why is the oil price still so volatile

WTI Oil slumped yesterday highlighting that the supply and demand imbalances that laid the ground for last week’s volatility had not been removed. Last week’s sell-off was catalysed by the expiry of the May WTI Oil contract and the need by traders to sell the contract at any price given there was no capacity to store excess supply at the oil farm at Cushing. Yesterday a regulatory filing by the largest US Oil ETF showed they were selling the June WTI contract from their tracker in case the same thing happened in three weeks’ time. This led to another leg lower for the June contract as a major investor left the market and investors had flashbacks of the storage squeeze seen last week.

What will today’s earnings tell us about the US economy

This week sees the peak of US earnings and today results are due from Alphabet, Ford and Caterpillar amongst others. Alphabet, the parent company of Google, should provide robust earnings given its business model is less disrupted by coronavirus and many of its cloud solutions should be in particular demand given the move to remote working. Ford’s earnings are likely to be impacted by the Q1 slowdown in automotive demand but given the bonds of the carmaker were downgraded to high yield last month this may add an idiosyncratic risk to the financing costs going forward. Lastly Caterpillar is seen as an industrial bellwether and its guidance is traditionally watched closely as a barometer of overall US corporate health. Many companies are not producing guidance for full year 2020 but if Caterpillar chooses to buck the trend it will be watched closely.

What does Brooks Macdonald think

Despite the oil price volatility, markets have been content to concentrate on the overall path of lockdown easing rather than the continued supply/demand imbalances in WTI Oil. The talk of the US reopening has gathered a lot of momentum in recent days. Whilst new case growth has slowed, the US would be going ahead of the timeline used more globally and therefore will need to be careful to ease restrictions slowly to avoid a resurgence.

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