Oil remains lower after inventory build; Stocks pull back

Summary:

• Oil still lower by 2% on the day after inventory build

• US stocks pull back near to last week’s closing level

• Beyond Meat tumbles on Broker downgrade

• FT report pressure Deutsche Bank stock

• Pound gains despite no-deal warning

The weekly Oil inventory figures have shown a bigger than expected rise in US stockpiles, but the market has failed to fall further since the release possibly due to the increase being smaller than last night’s API equivalent and also the fact that US production decreased. On the whole these figures aren’t as negative as the headline suggests and when you consider that last night’s API showed a build of 4.9M you could argue that even the headline isn’t that supportive. The fall in US production is also worth pointing out as a slight positive for price. The initial reaction in Oil has been pretty mixed with a sharp sell-off in the few minutes that followed seeing buyers step in around daily lows of 60.60. The push higher failed at 61.41 however and these 2 levels are now important to keep an eye on for a break of the recent range.

There’s a little bit of softness around in equity markets today as they appear to be taking a pause after the recent strong run higher. The S&P500 managed to push up to a new 5-week high during Tuesday’s session, but failed to hold onto these gains and ended lower for the second day in a row. It appears that there is now some indecision in the market and price earlier fell to its lowest level of the week, almost closing the gap up seen over the weekend from Friday’s close of 2873 in the process. With next week’s Fed decision very much at the front of trader’s minds at present, inflation data could be seen to take on an even higher level of significance than usual. Expectations of a rate cut are rising and, while this view isn’t really due to falling inflation levels, a drop in the CPI data for April could be seen to reduce the argument for further hikes or even keeping the funds rate on hold to protect against rising prices. The headline Y/Y reading came in at 1.8% vs 1.9% expected with the core reading that strips out food and energy dropping to 2.0% against a consensus forecast of 2.1%.

Since making its stock market debut at the start of last month, Beyond Meat has been on a quite sensational run higher, with the price rallying by almost 600% from its IPO level to Monday’s high in the mid 180s. However, yesterday saw the biggest daily drop in the markets short life so far, after a downgrade from JP Morgan saw the stock tumble 25%. JP Morgan is one of the banks that underwrote the initial offering, but analyst Ken Goldman cut his outlook on the company to “neutral” from “buy” in a move that saw the rapid recent rally stopped in its tracks. The market has jumped by nearly 70% in the past two sessions after upbeat quarterly results and a strong 2019 outlook but some air has been let out as the downgrade brought a sobering dose of reality to what had been a face-ripping move higher. The stock has begun brightly this afternoon, rising by almost 5% on the opening bell.

There’s been more bad news for Deutsche Bank today after a report in the Financial Times. The FT wrote that the bank has sent termination letters to hundreds of its clients warning that they will not be able to use Deutsche Bank services unless they can provide additional additional verification documents. This could obviously pose a problem if the corporate clients don’t comply with the request and choose to take their business elsewhere. Shares have ended the day lower by almost 1%.  

There’s been more upside seen in sterling this morning with the pound building on Tuesday’s appreciation and trading not far from a 3-week high against the US dollar. While this short-term move is welcome, the longer-term direction of the pound remains heavily reliant on what happens next with Brexit and there remains a feeling that the market is underestimating the risk of a no-deal scenario. Boris Johnson, the heavy favourite to become the next PM has promised to take Britain out of the EU with or without a deal on October 31st, and if he is as good as his word then the risk of a no-deal is rising. After MPs effectively blocked the threat of a no-deal a few months back the pound rallied as traders began to see Theresa May’s deal as the worst-case scenario. However, given the time restraints until the end of October, this outcome or a similar variation is now looking like the best possible outcome and as such could well provide a ceiling to any significant moves higher in the pound for the foreseeable future.