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Crude lifted by Iran-US tension but virus impact hits stocks

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Oil refinery PHOTO: Kevin Schafer/Getty Images

US oil prices were set to end a historically bad week on a positive note, extending gains Friday owing to rising Iran-US tensions, though equities edged down following a series of crushing economic data.

As the rates of infection and deaths linked to the coronavirus show signs of easing in some countries thanks to draconian lockdowns, a fuller picture of the extent of its economic impact was beginning to emerge.

Purchasing managers indexes — which gauge activity in countries’ factory and service sectors — came in at either lows not seen in decades or in history, highlighting the huge battle governments face in averting an extensive, painful depression.

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The readings came as the US said 4.4 million people applied for unemployment benefits last week, taking the total virus-fuelled job losses in the country to more than 26 million.

There was little major reaction to news that US lawmakers had approved nearly half a billion dollars in new stimulus, on top of the more than $2.2 trillion already passed.

Adding to the downbeat mood was a Financial Times report that said initial trials of the remdesivir coronavirus drug being developed by Gilead Sciences had flopped.

The news was a blow to investors and while Gilead said it was still awaiting data from multiple studies of the drug, which has shown promise in some analyses, it sparked a sell-off on Wall Street with all three indexes ending virtually flat.

That weakness seeped into Asia, which was on course for a weekly loss, having enjoyed two weeks of healthy gains caused by huge stimulus measures and hopes the disease was plateauing.

“Beyond extraordinary policy support, the main reason for the strong recovery in risk sentiment is the unambiguous clarity of this recession’s driver compared to previous downturns that were more multi-branched and ostensibly more difficult to unwind,” said AxiCorp’s Stephen Innes.

“The removal of a single recessionary input (the virus) via a vaccine or more effective treatment can pave the way for fast recovery in output. There’s a lot of hope riding on a cure, and with optimism around remdesivir as top view on the healthcare section, it’s a bit of blow for the market at week’s end.”

‘Decisive response’
Tokyo stocks ended 0.9 percent lower, while Hong Kong shed 0.6 percent and Singapore slipped 0.9 percent.

Shanghai, Seoul and Jakarta fell more than one percent, while Mumbai dropped 0.5 percent. Taipei and Bangkok fell 0.2 percent apiece, and Wellington was off 0.3 percent. Manila sank more than two percent as the Philippines government extended a lockdown in the capital.

In early trade, London, Paris and Frankfurt sank as EU leaders were divided over the size of a financial rescue package to stimulate the bloc’s economy and a Bank of England official warned of Britain’s worst recession in centuries.

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JP Morgan Asset Management strategist Hannah Anderson warned that while news that some countries were moving to ease lockdowns and the virus was growing at a slower rate, there were still dangers ahead.

“It is important to not conflate medical and economic data,” she said in a note.

“Obviously a deceleration in infection rates is a positive development for the economy, but progress in combating this awful disease is not the same as returning the economy to the place it was last fall.

“Investors need to understand that the risks associated with lifting public health measures too early could further exacerbate market pain.”

While stock markets were struggling, oil was enjoying another day of gains, with WTI up more than seven percent at one point, having surged around 20 percent on Thursday on the back of a new flare-up between Washington and Tehran.

Iran warned the US of a “decisive response” after President Donald Trump said Wednesday that he had ordered the US Navy to destroy Iranian boats that harass American ships in the Gulf.

However, the gains in crude were unlikely to be sustained, observers warned, as storage facilities are near to bursting with demand almost non-existent — a situation that sent the May contract for WTI to minus $40 this week.

“There is little in the way of fundamental developments to support the move higher, although given the amount of weakness recently, we were due a relief rally,” said Warren Patterson and Wenyu Yao at ING.

“Renewed tensions between the US and Iran will likely be providing some support, but… this will likely be short-lived unless we see a further escalation.”

ANZ said there were also signs that producers had started cutting output after this month’s agreement among OPEC and key non-members to support prices, while the Energy Information Administration said American crude production fell slightly last week.

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– Key figures around 0810 GMT –
West Texas Intermediate: UP 1.7 percent at $16.78 per barrel

Brent North Sea crude: UP 1.3 percent at $21.61 per barrel

Tokyo – Nikkei 225: DOWN 0.9 percent at 19,262.00 (close)

Hong Kong – Hang Seng: DOWN 0.6 percent at 23,831.33 (close)

Shanghai – Composite: DOWN 1.1 percent at 2,808.53 (close)

London – FTSE 100: DOWN 1.2 percent at 5757.57

Euro/dollar: DOWN at $1.0737 from $1.0775 at 2100 GMT

Dollar/yen: UP at 107.71 yen from 107.62 yen

Pound/dollar: DOWN at $1.2312 from $1.2344

Euro/pound: DOWN at 87.18 pence from 87.29 pence

New York – Dow: UP 0.2 percent at 23,515.26 (close)

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