Wall Street has ended the Easter week on a high note after the US Federal Reserve unleashed another program designed to support local governments and small to medium businesses survive the terrible impact of the coronavirus pandemic.
The S&P 500 index posted its best weekly gain since 1974, in the holiday-shortened week, bolstered by early signs that the outbreak was hitting a peak as well as aggressive global stimulus.
Under the Fed’s new $US2.3 trillion package, the central bank said it would work with banks to offer four-year loans to companies of up to 10,000 employees and directly buy bonds of states and more populous counties and cities.
That move will do more to support the US economy than the stimulus plan from the Trump administration. The Fed facility has filled gaps missing from the Trump plan around providing real financial support to local governments and the states and small to medium businesses.
The Trump package just didn’t provide as much money as needed by the states and small businesses to survive.
The Dow rose 285.8 points, or 1.22%, to 23,719.37, the S&P 500 jumped 39.84 points, or 1.45%, to 2,789.82 and the Nasdaq was up 62.67 points, or 0.77%, to 8,153.58.
For the week, the Dow rose 12.7%, the S&P climbed 12.1% and the Nasdaq gained 10.6%.
At the same time, OPEC and Russia reportedly reached agreement to cut global production by 10 million barrels a day – for only two months, with the cuts then falling to zero by early 2022.
Oil prices surged, then retreated on the realisation that cuts are not going to be enough, even with help from non-OPEC countries.
In New York, West Texas Intermediate May crude futures settled down $US2.33, or 9.3%, to settle at $US22.76 a barrel after trading as high as $28.36. It fell 19.7% for the week.
In Europe, June Brent crude lost $US1.36, or 4.1%, at $US31.48 a barrel after hitting an intraday peak of $3US6.40. The front-month international contract was 7.7% lower for the week.
That saw the market ended well off earlier session highs as oil prices reversed course and turned lower as production cuts by OPEC and its allies were seen as not enough to offset the continuing slide in demand. The S&P 500 energy sector fell 1.08%.
But in more gloomy news, the toll of job losses continue to rock America – the first week of April saw more than 6 million people making their first benefits claims taking the total in the past month to 17 million, indicating a real unemployment rate of well over 10% and mounting.
The US Labor Department said new unemployment claims totalled 6.606 million for the week ended April 4, way above expectations but just under the previous week’s tally of a revised 6.867 million (up from 6.3 million originally).
California had by far the highest number of new claims at 925,450, dwarfing the next two closest states of Michigan and New York which had, respectively, 384,844 and 345,246. California also posted the largest increases in initial claims for the week ending March 28, of 871,992.
That’s because of the mass sackings by TV, film and entertainment companies and at facilities like Disneyland. Late last week Disney sent staff at its film studios on leave.
The reported oil cut deal of 10 million barrels a day depends on another cuts of another 5 million barrels a day (bpd) expected to come from other nations such as Canada and the US.
Thursday’s talks will be followed by a call on Friday between energy ministers from the Group of 20 (G20) major economies, hosted by Saudi Arabia. OPEC and Russian sources said they expected other producers to add 5 million bpd to cuts.
Global fuel demand has plunged by around 30 million bpd, or 30% of global supplies, as steps to fight COVID-19 have grounded planes, cut vehicle usage and curbed economic activity.
A 15 million bpd cut still won’t remove enough crude to stop the world’s storage facilities quickly filling up.
The International Energy Agency says there will be another 15 million barrels a day surplus generated in the current quarter from falling demand with jet fuel, petrol and diesel demand down by 50% to 80% in many countries. These cuts will not impact that surplus.
US output fell 600,000 barrels last week to 12.4 million barrels as companies cut back their rig use and capped wells. At least two companies in the fracking sector have collapsed and more could follow by the end of April.
But if they survive after being reorganised they will still continue to pump oil to pay down their new debts.
US President Donald Trump has threatened OPEC if it did not fix the oil market’s problem of oversupply.
But that’s hot air. He has threatened to impose tariffs on imports of oil from OPEC countries but they will not do anything just as higher tariffs on steel and aluminium imports failed to have any impact other than boosting prices to US consumers of the metals which in turn lowered demand and saw steel and aluminium plants closed.
The White House reportedly said Trump held a call with Russian President Vladimir Putin and King Salman of Saudi Arabia who is in isolation on an island off the Saudi coast to avoid being infected by the COVID-19 virus which is reaching worrying levels of infection in the country.
There is a chance that US states could order output cuts that would not be hit by anti-trust concerns.
Reuters reports that Several the oil regulator in Texas (The Texas Railroad Commission), the largest producer among US states with output of about 5 million bpd, meets next Tuesday, April 14 to discuss possible curbs.
Reuters also reported that all OPEC members will reduce their output by 23%, with Saudi Arabia and Russia each cutting 2.5 million bpd and Iraq cutting over 1 million bpd.
How a two-month maximum cut will help remains to be seen because oil stocks are rapidly rising around the world. US stocks for example have risen by 29 million barrels in three weeks alone.
Gold had a solid finish to the short week – the Comex June gold contract rose $US68.50, or 4.1%, to settle at $US1,752.80 an ounce on Thursday after trading as high as $US1,754.50.
It marked the highest most-active contract settlement since October 2012 according to FactSet data. For the holiday-shortened week, gold rose 7%.
Comex May silver jumped 84.8 US cents, or 5.6%, at $US16.053 an ounce. For the week, it was up almost 10%.
The new Fed loan facility helped push it higher, but so did a weaker US dollar. That saw the Aussie dollar jump pact 63 US cents to end at 63.40 US cents.
