By Geoffrey Smith
Investing.com -- Oil is back above zero, but the aftershocks in both futures and the physical market are dragging stock markets lower, in Asia, Europe and, ahead of the open, the U.S. too. IBM (NYSE:IBM)'s new age of rising revenue didn't last long, but Coca Cola beat expectations, and there are high hopes that house-bound consumers will also push Netflix (NASDAQ:NFLX) to good numbers after the close. European bond spreads are widening again as concerns about the eurozone's southern periphery mount, and reports that Kim Jong-Un is seriously ill hit the Korean won. Here's what you need to know in financial markets on Tuesday, April 21st.
1. Oil – Good news and bad news
The good news is – the May futures contract for U.S. crude, which expires later, has shrunk to insignificance as market participants complete the process of rolling futures positions into longer-dated contracts.
The rest of the news is mostly bad. The June futures contract, where the open interest and volume is concentrated, is down 17.5% at $16.86 a barrel as of 5:50 AM ET (0950 GMT), albeit that's off a low of $11.89. The Brent June contract is down 14.6% at $21.89 a barrel.
In other words, while the extraordinary collapse in U.S. prices was indeed exaggerated by short-term factors, the reality of crushing oversupply (the IEA suggested a drop of 26 million barrels in May from year-earlier levels) is still with us for at least a few weeks.
The American Petroleum Institute’s weekly inventories data for last week are due at 4:30 PM ET (2030 GMT). After Monday’s events, even the 5.7 million barrel rise expected for the government’s data on Wednesday may be a relief to some.
2. Things look dim for Kim
The South Korean won weakened after a CNN report indicating that North Korea’s leader Kim Jong-Un was critically ill after heart surgery earlier this month.
Speculation about Kim’s health had started when he skipped a ceremony last week celebrating the birthday of Kim Il-Sung, the founder of the Communist dynasty that has ruled North Korea since its creation in the 1950s.
The dollar rose as much as 1.8% against the won to its highest in over two weeks, amid fears that a power vacuum could create greater short-term instability. North Korea had fired a series of missiles into the sea off its east coast a week ago, the latest in a series of military maneuvers that observers had initially guessed were aimed at diverting attention away from a coronavirus outbreak.
3. Energy woes weigh on global stocks; U.S. to open lower
U.S. stock markets are set to extend Monday’s losses when they open later, as the volatility in oil prices acts as a sobering reminder of the collapse of economic activity.
By 6:40 AM ET (1040 GMT), the Dow Jones 30 Futures contract was down 357 points, or 1.5%, at 23,151 points, while the S&P 500 futures contract was down 1.1% and the Nasdaq 100 futures was down 0.6%.
European stocks were also lower and even Asian stocks were also dragged lower by developments in energy, as fear about the macro backdrop outweighed any suggestion that cheaper energy was a net benefit to importers.
A rebound in the German ZEW sentiment index to 28.2 from -49.5 in March failed to improve sentiment much, not least because the current conditions sub-index fell to -91.5. The Stoxx 600 was down 2.0%, while the FTSE 100 was down 1.9%.
4. IBM reverts to type; Netflix may do better
IBM returned to its familiar path of falling revenue in the first quarter, thwarting hopes that it had turned a quarter at the end of 2019 with its first annual rise in sales in years.
Revenue at Big Blue fell 3.4%, while earnings per share fell 18%, leading the company to withdraw its guidance for the year in its release after the bell on Monday.
Equifax (NYSE:EFX) joined IBM in pulling its guidance, but its stock still rose in after-hours trading after its first-quarter results beat expectations.
Coca-Cola (NYSE:KO) also beat forecasts when it kicked off the day’s deluge of reports. Lockheed and others follow before the bell.
Netflix is arguably the most hotly-awaited set of results on Tuesday, but they’ll come after the close, as will Texas Instruments (NASDAQ:TXN) and Chipotle Mexican Grill (NYSE:CMG).
5. Deja vu in the euro zone
Eurozone sovereign bond spreads widened again after Goldman Sachs (NYSE:GS) warned that Italy may be downgraded to junk status if it doesn’t get help from the EU to rebuild its economy after the Covid-19 crisis passes.
Fears that a sharp recession and the lack of an adequate central response from EU and eurozone bodies have caused sovereign bond yield spreads to widen to the most in over a month in the last two sessions. Comments by German Chancellor Angela Merkel that she could envisage an expanded EU budget in the future did nothing to change that.
The spread between Italian and German 10-year bonds widened to 248 basis points, while the Greek spread widened to 264 basis points and the Portuguese one widened to 153. The euro fell 0.3% to $1.0833.