Good afternoon
oil stocks in Australia plummeted by more than 20% - Santos down even 27%. That is incredible, and points to investors expecting a prolonged price war. Shale stocks in the US, which are the highest cost producers ( estimated breakeven for the sector is 42 US$/barrel ), will not only hit because of high costs, but also high debt. As we all know, the shale-frenzy has been financed by cheap debt - and corporate debt spreads have already blown out before today. So will the market eventually behave like a market, and correct itself, by burying the shale story??
European equities are weak, certainly…fluctuating quite a bit, but probably closing 6-7% down for a approx 20% hit since the beginning of the year! The US is trying to recover from a chaotic opening, currently down 4-5%.
Interesting, empirical research from a well regarded analyst in Australia today.: Whenever we have had these massive sell-offs in a very short space of time, the market did recover obviously - but it took a little bit of time: On average, the market was down another 0,5% one month after the sell-off - but 2 month later, itw as up by 5%. So it does need some time to rebuild confidence. Do not expect a V-shaped recovery. This is with regards to the general market - oil might be a different story, as a lot will depend on rethoric from Saudi-Arabia, and also Russia here. Will they attempt to drive down shale production for a long time, or will they bulk under the pressure to get their own houses in order? It´s estimated, that the average cash production cost of Saudi Oil is only about 3$/barrel - but to balance their budget, they reportedly need 80 US$/barrel!
The current crisis will without any doubt make the EU very uncompromising with regards to the new refugee-crisis, which has built up recently , as Turkey is trying to send us many new refugees. I fear I have to say, that I agree with this policy - and definitely in the current context! A few hundred thousand fresh refugees from Syria etc is the last thing we need in the moment! No time to show mercy….
Metals are holding up ok - down between 1-2.5% on in the moment - I guess it could be worse! Gold ETF`s are continuing to see strong inflow. Gold is doing at least what you think it should be doing: Holding it´s worth in dangerous times, preserving capital! Oil has been trading at between 35-and 37 US$barrel Brent - that´s at least much better than the lows seen early this morning at around 32$. It is currently trading at the better end at just under 37$/barrel ( 4.30 pm European time ).
And last but not least, the Australian $ went for a wild ride today…the real trading range ( except for a 1-minute interval ) has been between 0,645 and 0,668 currently against the US…
Not surprisingly, very little company-related news out today!
have a nice evening
WS