Market Overview

10 July 2020

Oil Pulls Down the Dow Jones and S&P500 with Greater Uncertainty

The triumvirate of major stock indexes in the United States closed on a mixed note on Thursday, while the market's volatility surprisingly spiked. Energy assets led a quick selloff just after Brent and West Texas Intermediate (WTI) oil prices fell by about $1.5. The words of Anthony Fauci, director of the U.S. National Institute of Allergy and Infectious Diseases about the growing number of infections in the United States served as the catalyst.

Fauci said during a podcast hosted by the Wall Street Journal that new COVID-19 cases in the country were seeing “exponential growth.” Then he developed his statement by saying: “It went from an average of about 20,000 to 40,000 and 50,000 [in daily numbers]. That’s doubling. If you continue doubling, two times 50 is 100... Any state that is having a serious problem, that state should seriously look at shutting down. It’s not for me to say because each state is different.”

With 98 coronavirus-related deaths in one day, Texas set its record for the highest single-day fatality figures on Wednesday. The state also reported its second highest number of daily new cases at 9,979. The University of Mississippi Medical Centre has more patients than rooms, the centre’s vice chancellor said on Thursday. Florida reported 120 Covid-19 deaths a day earlier, a single-day record for the state, and 48 hospitals there had no more capacity in its intensive care units, which is down from 56 two days earlier, the state Agency for Health Care Administration said. The viral situation is also severe in Louisiana and California, which was one of the first states to implement restrictions. Some investors are concerned about whether these states or some other territories are really threatened by a probability of a new shutdown.

A little bit later, Dr Fauci added that maybe states should opt to pause reopening measures rather than revert to a complete shutdown. This partially smoothed out the unpleasant effect of its original wording, so the stock indexes stopped falling, and then rebounded to some higher levels. However, they behaved differently. The Dow Jones 30 index, which is the most dependent on the energy sector, recovered less than others and lost 1.39% at the end of the day. The S&P 500 broad market index performed better losing only 0.52%. The high tech Nasdaq Composite index even rose by 0.63% to close at record highs for the second straight day, as many investors are seeking a refuge in "stay at home" assets or other internet-related stocks at a risky moment when coronavirus come back threatens the normal recovery processes.

It is not an accidental that both Amazon at $3182.62 (+3.29% for one day) and its Chinese Alibaba Group competitor at $261.58 (+1.51%) have rewritten their all-time peaks again, as Amazon shares have jumped in price by more than 15% since the beginning of July, while the price of Alibaba stocks was almost the same 15% lower just a week ago. New historical records were set by Netflix, which opened the day above $508 per share and closed nearby after a short decline in the area of $495. Apple traded above $380 per share for almost all the time of the trading session and closed at $382.60 with a zero daily result, but more than $20 higher than the previous Thursday. Google fell just seven cents short of updating its personal record, while Microsoft has been setting new highs for the second week in a row. Apple, Microsoft, Google and Amazon collectively make up about 40% of the Nasdaq index, which therefore closed higher. 

Oil prices could not avoid losses as U.S. crude stockpiles increased by 5.65 million barrels for the week-ended July 3. Another difficulty for oil prices is that the disruption in Libya's Messla oil field production has ended. There have also been reports that total oil purchases at bargain prices in April and May filled almost all oil storage facilities in China to the brim. There are almost no tanks left in the country where any additional volumes of oil could be poured, as storage capacities in mainland China are used by 69%, which is only 1% less than the safe technological limit, Caixin reports, citing data from Oilchem China.

Some analysts said that China's stockpiling dwarfs what other nations have done in response to cheap prices. "China is the only country that has been buying like crazy. They went out and bought the dip," Matt Smith, director of commodity strategy at ClipperData commented. Of course, other countries similarly took advantage of the spring oil crash to bolster their emergency stockpiles. "If you're a big energy consumer, you'd be buying with two hands," said Ryan Fitzmaurice, energy strategist at Rabobank. On June 29, 59 tankers were anchored off the coast of China, holding a total of 73 million barrels on board. Nothing like this has ever happened in history - even in the crisis of 2015, when the market was heavily overflowed. Of course, overflowing storages make it difficult for oil prices to continue moving higher since there are probably not enough market participants to buy new volumes at more expensive prices.

For those reasons, industrial stocks and indexes may pull down the S&P500 broad market index, and it may even launch some limited profit taking in more prosperous high-tech assets from the Nasdaq index list at some point before the end of the week or soon after the weekend. At the same time, the Nasdaq index may withstand, climbing higher into the blue sky. As for the gold spot price, it dipped at one moment, approaching $1795, as some profit taking took place. However, the price is picking up to levels around $1,800, feeding the hopes for more gains in close approaching days.


Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.


Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

Open Forex Demo Account
I understand and accept the Privacy Policy and agree that my name and contact details can be used by TeleTrade to contact me about the information I have selected.
23 International Awards
Have a question?

We are ready to assist you in every step of your trading experience
by providing 24/5 multilingual customer support.

Follow us

Risk Warning: Trading Forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.42% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Prior to trading, you should take into consideration your level of experience and financial situation. TeleTrade strives to provide you with all the necessary information and protective measures, but, if the risks seem still unclear to you, please seek independent advice.

© 2011-2021 Teletrade-DJ International Consulting Ltd

Teletrade-DJ International Consulting Ltd is registered as a Cyprus Investment Firm (CIF) under registration number HE272810 and is licensed by the Cyprus Securities and Exchange Commission (CySEC) under license number 158/11.

The company operates in accordance with Markets in Financial Instruments Directive (MiFID).

The content on this website is for information purposes only. All the services and information provided have been obtained from sources deemed to be reliable. Telerade-DJ International Consulting Ltd ("TeleTrade") and/or any third-party information providers provide the services and information without warranty of any kind. By using this information and services you agree that under no circumstances shall TeleTrade have any liability to any person or entity for any loss or damage in whole or part caused by reliance on such information and services.

TeleTrade cooperates exclusively with regulated financial institutions for the safekeeping of clients' funds. Please see the entire list of banks and payment service providers entrusted with the handling of clients' funds.

Please read our full Terms of Use.

To maximise our visitors' browsing experience, TeleTrade uses cookies in our web services. By continuing to browse this site you agree to our use of cookies.

Telerade-DJ International Consulting Ltd currently provides its services on a cross-border basis, within EEA states (except Belgium) under the MiFID passporting regime, and in selected 3rd countries. TeleTrade does not provide its services to residents or nationals of the USA.

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.42% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.