“U.S. manufacturers such as Ford, Apple and Tesla have
temporarily halted production. One-sixth of Apple sales and nearly half of
chip-maker Qualcomm’s revenues come from
China. So do 80% of active ingredients used by drug-makers to produce finished
medicines. Because China is the world’s largest manufacturer and an enormous
consumer market, the economic freeze will disrupt supply chains and reduce corporate
earnings,” editors wrote.
When China coughs, the rest of the world catches the cold,
the editors added. Chevron last week turned in disappointing results for the
fourth quarter, but indicated that total liquid fuel production had increased,
driven in large part by US shale. On Tuesday, British supermajor BP raised it
dividends, but reported
a loss for the quarter. Shares of BP were up more than 4% in early Tuesday
trading on the news.
Elsewhere, OPEC delegates are meeting in Vienna to consider
their response to the demand destruction supposedly triggered by the coronavirus.
If we follow fourth quarter reports from the likes of Chevron, and consider the
steady gains in US inventories, OPEC may have a case to cut deeper. Rumors
surfaced Monday that Saudi Arabia was pushing for cuts equivalent to sidelining
a fully-producing Libya from the market. But on Tuesday, Russian Oil Minister
Alexander Novak said
it may be premature to take formal action.
“There are lots of uncertainties, maybe those are panic
attacks,” he said.
Indeed, there may be some scapegoating
of the coronavirus. Fourth quarter woes from energy companies reporting thus
far are reflecting a market already under pressure from US-Chinese trade
tensions and manufacturing weakness. The first quarter, meanwhile, is typically
a quiet one, leaving the door open for the amplification of even a minor market
shock.
In US politics, a glitch delayed the outcome of the Iowa
Caucuses. Left-leaning Bernie Sanders reported that internal figures showed he
was the winner, though Pete Buttigieg was also upbeat on the results. For the markets,
a Sanders win may be unsettling to some given his campaign pledges of breaking
up big banks, increasing taxes on the wealthy and hiking the minimum wage. If
his internal figures are accurate, the market could move into the red in
response. The SNAFU alone, meanwhile, is sure to give President Trump ample
ammunition to fire at his rivals.
Crude oil prices were in the black at the start of the
trading day, though expect OPEC rumors to make for a bumpy ride. Uncertainty
from the cartel could spoil the rally. Later, the American Petroleum Institute releases
its data on US crude oil inventories and any signs of continued glut could drag
on prices. Intra-day patterns on Brent were noisy on Tuesday and expect the
volatility to continue.
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