Oil Extends Gains as U.S. Rigs Idled Before Doha Freeze Talks

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Oil extended gains after the biggest jump in almost two months as U.S. drillers idled more rigs ahead of talks between the world’s biggest producers about freezing output.

Futures rose as much as 1.9 percent in New York after increasing 6.6 percent Friday, the most since Feb. 12. The number of active oil rigs fell for the 15th time in 16 weeks to the lowest level since 2009, according to data from Baker Hughes Inc. Venezuela said the first step at the April 17 meeting in Doha between suppliers including Saudi Arabia should be to cap production.

Oil has rebounded after falling to the lowest in more than 12-years amid signs that a global glut will ease as U.S. output declines. Saudi Arabia said it will agree to a freeze only if it’s joined by other suppliers including Iran, while Kuwait said a deal can be done without Tehran’s support. Iraq boosted production to a record in March, according to the state-run Oil Marketing Co.

West Texas Intermediate for May delivery advanced as much as 75 cents to $40.47 a barrel on the New York Mercantile Exchange and was at $40.14 at 8:21 a.m. Hong Kong time. The contract rose $2.46 to $39.72 a barrel on Friday, capping an 8 percent weekly gain. Total volume traded was about 46 percent above the 100-day average.

Brent for June settlement climbed as much as 51 cents, or 1.2 percent, to $42.45 a barrel on the London-based ICE Futures Europe exchange. Prices increased 8.5 percent last week. The global benchmark crude was at an 85-cent premium to WTI for June.

Source: Bloomberg

Oil Rises Most in Two Months on U.S. Output Drop, Freeze Talks

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Oil rose the most in two months as U.S. crude production continued to slide before talks between suppliers to discuss freezing output.

Futures climbed 6.6 percent in New York. U.S. output slid for the 10th time in 11 weeks through April 1 and crude stockpiles fell, according to data from the Energy Information Administration on Wednesday. The number of active oil rigs in the U.S. dropped to the lowest level since 2009 this week, Baker Hughes Inc. data show. Major producers from Saudi Arabia to Russia will meet in Doha on April 17 to discuss freezing output in a bid to stabilize prices.

Crude slid to the lowest level in almost 13 years in February before rebounding on signs a global glut will ease. Prices have whipsawed this week amid speculation over whether an accord to cap output can be reached. Saudi Arabia said it will only agree to a freeze if it’s joined by other suppliers including Iran, while Kuwait said a deal can be done without Tehran’s support.

West Texas Intermediate for May delivery advanced $2.46 to close at $39.72 a barrel at on the New York Mercantile Exchange. It’s the biggest gain since Feb. 12. Prices climbed 8 percent this week. Total volume traded was 58 percent above the 100-day average at 2:53 p.m.

Brent for June settlement rose $2.51, or 6.4 percent, to $41.94 a barrel on the London-based ICE Futures Europe exchange. The front-month contract closed at an 8-cent discount to the second-month. The global benchmark oil closed at a 95-cent premium to June WTI.

Source: Bloomberg

Asian Stocks Decline as Japanese Shares Slump Amid Economic Data

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Asian stocks fell, ahead of Chinese data on inflation and factory prices, as Japanese shares retreated amid a slump in machine orders. Energy producers climbed as U.S. oil topped $40 a barrel.

The MSCI Asia Pacific Index dropped 0.4 percent to 125.83 as of 9:08 a.m. in Tokyo. Global stocks fell last week amid concern over the potency of central bank stimulus efforts and a selloff in Japanese equities. Focus now turns to Monday’s data from China and first-quarter earnings in the U.S.

South Korea’s Kospi index slipped 0.1 percent. Australia’s S&P/ASX 200 Index was little changed and New Zealand’s S&P/NZX 50 Index added less than 0.1 percent.

Futures on Hong Kong’s Hang Seng Index were down 0.2 percent and contracts on the Hang Seng China Enterprises Index dropped 0.3 percent. FTSE China A50 Index futures rose 0.1 percent in most recent trading. China is due to report data on consumer and producer prices.

Source: Bloomberg

Japan Stocks Fall After Yen Strengthens, Machine Orders Decline

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Japanese stocks fell, extending two weeks of losses, after the yen rallied for six days and as a report showed machine orders dropped in February for the first time in three months.

The Topix index lost 0.7 percent to 1,278.84 at 9:02 a.m. in Tokyo, with all but four of its 33 industry groups retreating. The Nikkei 225 Stock Average fell 0.6 percent to 15,732.32. The yen traded at 108.30 per dollar. Core machine orders slipped 9.2 percent in February from the previous month. Analysts had expected a 12 percent drop.

The Topix was down 17 percent in 2016 through Friday, the world’s steepest decline behind Italy. BlackRock Inc., the world’s largest money manager, is among firms ending bullish calls on Japan equities.

Futures on the Standard & Poor’s 500 Index were little changed after the underlying U.S. equity gauge added 0.2 percent on Friday, trimming the worst weekly slide in two months, as a surge in crude oil that boosted energy shares offset a slump in biotechnology shares.

U.S. oil topped $40 a barrel for the first time this month, extending Friday’s surge amid easing concern over a global glut ahead of a meeting of major producers.

Source: Bloomberg

Why beating lowered earnings expectations will not help stocks soar

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Investors can expect corporations to beat lowered estimates by solid margins this earnings season, but it might not deliver a fillip to the overall stock market, according to analysts at Bank of America Merrill Lynch.

Consensus estimates for first-quarter earnings per share on the S&P 500 is for a 9% year-over-year decline–after a 9% downward revision–and would mark the third consecutive drop, according to FactSet.

The team of analysts, led by Savita Subramanian, market strategist at Bank of America Merrill Lynch expect companies to beat estimates by 4 percentage points–mostly due to a decline in crude prices that was less severe in the first quarter of 2016 than during the same period in 2015.

For example, crude prices declined nearly 11% in the first three months of 2015, compared with a 3.5% gain for the commodity in 2016 over the same stretch, according to FactSet data. Crude has lost more than two-thirds of its value since its peak in 2014 and that has walloped earnings for oil-and-gas companies.

Meanwhile, the dollar–another headwind for multinational companies–fell 4.1% in the first quarter of 2016, as measured by the U.S. ICE Dollar Index compared with a climb of about 9% during the first three months of 2015.

Since the second quarter of 2015, companies based in the U.S. have regularly blamed the strong buck for weaker-than-expected earnings. Dollar strength can translate into weaker sales for U.S. companies when money is repatriated from a country with a weaker currency.

The greenback’s retrenchment may be why BAML is predicting that multinationals will outperform domestic companies:

“. multinationals are seeing better estimate revision trends than purely domestic stocks for the first time since 2014, as well as better guidance trends. These stocks have outperformed the market by over 4 percentage points since the mid-February reversal, but after underperforming by nearly 35% over the past five years, there may be room for a bit of catch-up this earnings season.”

But despite the alleviation of some of these pressures for corporations, even a healthy outperformance in earnings might not be sufficient to send the market higher in the short term, because overall economic and revenue growth remain sluggish.

One reason for this is that many companies have laid off workers and restructured their businesses to grow their quarterly profits and have few levers left to pull to further juice earnings, especially if the domestic and global economies perform as poorly as economists are predicting.

“…overall growth remains tepid and given the 13% rally off the February lows, much of the potential beat may already be reflected in stock prices”

In fact, BAML economists’ forecast for the first-quarter GDP is a mere 0.2%, while they forecast about 2% growth for the whole year.

The lion’s share weakness in earnings will come from the energy sector, which is forecast to see an ugly quarterly loss of 3.8% compared with the same period last year which saw the sector post a profit of $12.9 billion, according to FactSet data.

For financials–the engine of the economy–profits are slated decline nearly 11%, according to FactSet data. The Federal Reserve’s reluctance to normalize benchmark interest rates due to concerns about the economy abroad has hobbled financial firms, which can collect richer returns when interest rates are higher.

Focusing on sectors that might outperform, Subramanian & Co. is recommending health-care and tech stocks, while proposing that investors shun energy and materials shares. BAML argues that companies with greater earnings and sales revisions and management guidance historically have been prone to underperform more sharply or offer better upside surprises. The following table gauges BAML’s preferred sector on a scale of 1 to 10, with 1 representing the most attractive sectors.

Source: marketwatch