Oil maintains gains, equities soften, WeWork loses face
Oil registered its biggest ever one day gain after a
gap higher on the open was sustained and the bears failed to fill the gap.
Traders are factoring in the potential for material supply shortages and an
added geopolitical risk premium.
After gapping to $63.50, WTI came under pressure to test
$58.60 before turning course to start today’s session at $62. The bullish swing
off the lows yesterday is a sign this is not a flash move. There’s a genuine
concern for traders now it means sustained higher prices.
Markets face a myriad of questions. First is the extent of
the damage – the FT reports four sources as saying it could take months for
facilities to be 100% again. This raises the prospect of shortages to global
supply that cannot be quickly filled. Wire reports out earlier suggest Aramco
is saying it can work on 30% for now and will be fully operational in two
weeks. I don’t think anyone really knows how long this will take. Statements
are due out today which may provide some elucidation.
Two, do we see escalation. The language from the US is
measured, for now, but it’s seemingly on a collision course with Iran. One
feels that even if it’s not drawn into conflict on this attack, the two
countries seem destined for a fight. We don’t yet know what the response
will be, but the attacks on the Saudi facilities raises the chances of a war.
The momentum in US equities was broken, leaving the Dow down
for the first time in nine. SPX ended 0.31% lower and just below 3,000
at 2997.96. Asia has been mixed.
The US has reached an initial tariff deal with Japan. The
question we all want the answer to is: where does this leave the chances of a
US-China agreement. Whilst the focus is on the Middle East and oil, trade is
still the single most important issue for global equity markets.
European markets are weaker today again as the fallout
from the Saudi oil strikes continues to gnaw away at confidence.
Some degree of haven flows have supported gold,
however the recovery in real US yields is weighing. Bulls still look in charge
after consolidating at $1500.
A real life court room drama today as the Brexit saga
rumbles on. The Supreme Court is to rule on the government’s prorogation of
Parliament. Big day therefore for the anti-Brexit rebels, although a decision
could take days. If the judges rule in favour of the government you’d hope it
would draw a line under the prorogation storm. It would also be a welcome boost
after the Luxembourg insult. I thought it was supposed to be conference season
Sterling is sitting, waiting. GBPUSD has eased back a
touch to 1.2420 having traded around 1.2450. Support at the 1.2380 is essential
for bulls. May be consolidating ahead of move to 1.2520.
Elsewhere in FX were seeing really rather low volatility and
sideways patterns with the majors caught in ranges. Nevertheless EURUSD
dropped quite sharply yesterday from around 1.1070 in the early European
session to trade with nine handle.
WeWork is said to be delaying its planned IPO.
Investors have given it the cold shoulder. It’s been something of a lemon so
far with valuations drastically cut. Even with those reductions – from $47bn to
$10bn – there’s not enough investor appetite. The $2bn they thought they could
raise – half of which was likely to be coughed up by Softbank – falls short of
the $3bn required to free up $6bn in bank funding. Blame market conditions –
we’re only about 1% off the all-time highs in the US…It’s amazing how the
cold light of an IPO can show up a business for all its stark neglect. To
be fair, after Uber and the SmileDirectClub debacle the IPO market is not
exactly simmering with interested buyers.