Daily Market Color

Rates Fall as Oil Futures Dip into Negative Territory


US oil futures fell below zero for the first time on record. The OPEC+ accord to cut production by 10M barrels/day has yet to be impactful in supporting the quickly deteriorating crude market. Storage has been exhausted, with barrels of oil at sea shooting up to 141M on Friday from 109M at the end of March. Since running out of crude storage, WTI for the May contract, which expires today, ended Monday’s trading session at -$37.63/barrel after closing at $18.27 on Friday. Despite prices dropping 105% in a matter of hours, crude for June closed around $21/barrel, with traders hoping the current oversupply will have decreased by delivery as economies begin to open up and demand normalizes. To ease some of economic strain, President Trump pledged to increase US purchases of oil, adding, “We’re filling up ur national petroleum reserves, strategic reserves and we are looking to put as much as 75 million barrels into the reserves themselves that would top it out.” President Trump is also considering Senator Kevin Cramer’s proposal to ban Saudi Arabia’s crude shipments already on their way to the US. The impact of the steep downturn in oil has spilled into broader financial markets, weakening global currencies tied to the commodity, such as the Russian ruble (-1.7%), Norwegian krone (-0.7%), and Canadian dollar (-0.4%). Equities are also shaping up for another day in the red, with major stock indices 1.5%-2.0% lower to open the trading session, while Treasury yield/swap rates are 1-6bps lower across the curve in a bull-flattening pattern



Congress hopes to agree on another economic stimulus package by the end of today. Meeting for the second day in a row, Senators hope to finalize a deal for economic relief, which would add approximately $310B more to the Paycheck Protection Program, $75B for hospitals, and $25B for increased testing. Despite the funding standstill, governors are taking steps to reopen their economies, with New York reporting its lowest new death rates on Monday. The US is nearing 800,000 confirmed cases of the coronavirus, with more than 42,000 deaths reported. President Trump, who believes that the pandemic is improving and states can begin opening for business, tweeted that in light of the pandemic, he “will be signing an Executive Order to temporarily suspend immigration into the United States” in order “to protect the jobs of our GREAT American Citizens.” Despite the national optimism, infectious disease expert Anthony Fauci warned that re-opening the US economy too soon could “backfire.”



Day ahead. This morning, US existing home sales figures for March will be released, with investors expecting a steep decline in activity, particularly in the second half of the month. Economists forecast an 8.1% decline in sales of existing homes — the largest one month drop since November 2015. President Trump and New York Governor Andrew Cuomo will meet in the White House later today to discuss their response to the pandemic. A number of companies will release their earnings reports, including Netflix Inc. and Coca-Cola Co.


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