European markets are set to open lower on Tuesday as investor concerns over the coronavirus outbreak continue and oil market volatility remains in focus.
London’s FTSE index was seen opening 106 points lower at 5,690, Germany’s DAX — 185 points lower at 10,466, France’s CAC 40 — 77 points lower at 4,439, and Italy’s FTSE MIB — 393 points lower at 16,630, according to IG.
Investors in Europe are eyeing any coronavirus developments as economies in the region are starting to lift lockdowns. But now, oil markets have come into play after a dramatic worsening of supply and demand.
West Texas Intermediate crude futures for May delivery turned positive in overnight trading, after plunging below zero for the first time in history on Monday. The contract in question is set to expire on Tuesday, fueling Monday’s 100% wipeout.
Asia stocks fell in Tuesday morning’s trade as uncertainty weighed over the health of North Korean leader Kim Jong Un.
CNN reported Tuesday, citing an unnamed U.S. official with direct knowledge, that Washington is “monitoring intelligence” about Kim being in “grave danger after a surgery.”
Hedge Fund Guidance
After a tough March, some hedge funds, emboldened by early signs of a coronavirus peak, have begun taking risks.
Worries over the economic hit from the virus slammed riskier assets in February and March. Still, hedge funds outperformed the market, with the HFRX Equity Hedge index down 9.58% in March. This is far better compared to the 12.5% decline of the S&P 500 Index.
“In long/short equity there is a small amount of re-risking that has been going on for the last two weeks but not back to the risk levels that we saw in February or the start of March,” said Rob Christian co-head of research and investment management at hedge fund solutions group K2 Advisors, part of Franklin Templeton Investments.
“Managers are being selective, buying good, solid businesses that have cash flow going forward and shorting indexes or weak companies,” he adds.
Some funds that are betting on the market retesting its lows are still looking to do some buying in certain areas. James McDonald, CEO at Los Angeles-based Hercules Investments has a trade which would profit from the stock market dropping back to March lows. While a majority of his buying would occur once such a pullback materializes, the fund has been making “incremental buys.”
At the moment, McDonald likes the U.S. Global Jets ETF (JETS.P), the VanEck Vectors Gaming ETF BJK (BJK.O) and the iShares Expanded Tech-Software ETF (IGV.Z), among others as recovery plays.
HISTORIC Oil Moves
This is truly amazing. If you usually skim this section, do yourself a favor and read it this time.
Absolutely historic.
Oil just did something that made even market veterans shake their heads in wonder — the soon-to-expire May contract for West Texas Intermediate crude on the New York Mercantile Exchange traded and closed in negative territory.
“I’m not sure how to react to that other than say that nobody, whether they’re 120 years old or whether they’re 20 months old, has ever seen an oil price lower than this,” Tom Kloza, a 40-year market veteran and head of global market analysis for Oil Price Information Service, told MarketWatch just minutes before the market closed on Monday.
The negative finish means that the holder of a long position would be required to pay someone to take that contract off of their hands. Negative oil prices seem to be a foreboding sign about the outlook for an economy already kicked in the teeth. It would also seem, at first glance, to point to ever-cheaper gasoline prices at the pump — a potential positive for hard-hit consumers.
The move was certainly emblematic of a historic bear market for oil, which has been sunk by the collapse of demand as a result of coronavirus outbreak and a brief-but-ugly price war between Saudi Arabia and Russia. But it also represents a phenomenon characteristic of futures markets where wild price swings — albeit perhaps never on Monday’s scale — can occur around contract expirations.