Crude Oil, OPEC+, Saudi Arabia, Wall Street - Talking Points
- Wall Street volatility picks up after fund blowup raises concerns over financial system, regulations
- OPEC+ meeting on deck, with Saudi Arabia reportedly willing to extend its own voluntary cuts
- Crude oil prices rise above trendline resistance as possibility for volatile price action looms
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US stock markets ended mixed on Monday after investors spent the weekend mulling over implications to the financial system from a series of large block trades that tanked ViacomCBS and Discovery shares on Friday. Sunday night revealed Archegos Capital Management, run by Bill Hwang, was behind the massive sell orders. Credit Suisse, believed to have large exposure to the trades, fell more than 10% in Monday trading.
The US-based family office’s blowup is sending shockwaves through the financial world and already has many calling for increased regulatory scrutiny after witnessing the cascading effects brought on by Mr. Hwang’s massive margin calls. A question many are asking is: how did a fund gain this amount of exposure to the market with such a high degree of leverage yet remain under the radar? Investment professionals and lawmakers alike will likely delve into that question in the coming weeks and months.
The S&P 500 and Nasdaq 100 index fell 0.09% and 0.10%, respectively. Small-cap stocks were the biggest losers, with the Russell 2000 index closing 2.83% lower. Meanwhile, the Dow Jones Industrial Average (DJIA) managed to gain 0.30%, led by Boeing after the jet manufacturer added 100 Max planes to its order book, courtesy of Southwest Airlines. Market volatility increased, nonetheless, with the VIX rising nearly 10%, likely a reflection of the Archegos Capital Management fund blowup.
Dow Jones Industrial Average vs Russell 2000 – 30 Minute Chart
Chart create with TradingView
Tuesday’s Asia-Pacific Outlook
Markets across the Asia-Pacific region were muted on Monday, with the fund blowup likely weighing on sentiment. Hong Kong’s Hang Seng Index (HSI) closed 0.01% higher, while mainland China’s CSI 300 put in a 0.18% gain. Elsewhere, South Korea’s KOSPI moved 0.16% lower, and Australia’s ASX 200 pushed 0.36% into the red.
Oil ministers are set to meet later this week to decide on the cartel’s supply policy for May. Despite a robust pickup seen on the demand side, particularly in the United States as the country’s vaccine rollout continues at breakneck speeds, lingering concerns over the fragility of the global economy are likely to keep output cuts in place.
Europe is one area of concern for oil ministers, where vaccine rollouts are hitting road bump after road bump. Now, political implications are afoot, after a spat between the 27-member bloc and the United Kingdom has injected calls for the EU to restrict supply chains, a move which could bring retaliatory measures and potentially cripple its ability to produce vaccines for its own populace.
Early Tuesday, Reuters reported that Saudi Arabia is ready to extend its own voluntary oil cuts in a show of support to OPEC and its members to extend production cuts out until May and June. The news pushed oil prices higher across the US and UK benchmarks and will likely be supportive to oil-linked currencies such as the Canadian Dollar and Norwegian Krone.
Crude Oil Technical Outlook
The OPEC+ news pushed crude oil prices above a descending trendline from the March high. The trendline break signals a bullish move in price action, however, prices remain nearly 9% lower from earlier in the month. MACD is picking back up on the daily chart after nearly avoiding a bearish cross below its center line.
Crude Oil Daily Chart
Chart created with TradingView
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--- Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwateron Twitter