Stocks rise in spite of a further decline in oil prices. The S&P500 rose 1.7% to 1,895 and the Dow Jones gained 1.4% to 16,196. US equities posted gains in spite of losses in both oil prices and Chinese markets. Saudi Arabia, Russia, and other members of Opec agreed to freeze production at January’s levels, however this agreement was met with disappointment from investors who may have been expecting more. As a result Brent oil fell 3.6% to $32.18 and WTI fell 1% to $29.15. This is the first unified response to low oil prices from the leading oil producing nations, and is significant in that it may lead the way for further actions going forward. In equities the VIX eased back to 24 however still remains elevated. The risk on attitude sent the ten year yield up three basis points to 1.78%. Similarly the German bund yield rose 2 basis points to 0.26%. Also in Europe the British pound fell 1% against the dollar to $1.4284 as a result of increasing political risk surround the potential Brexit. The euro fell 0.1% against the dollar to $1.1139 as investors continue to expect that the ECB will expand monetary easing policies. Gold prices fell as investors shifted into risk assets.
Saudi Arabia, Russia, and Venezuela agree to freeze production at January’s supply levels as long as other leading oil producing nations do the same. In spite of this agreement oil prices sold off as analysts expect that it would take some form of supply cut to eliminate the market oversupply. While today’s actions failed to have a significant market impact it represents the start of attempts to stabilize the market. Other Opec members who were involved with the talks between Saudi Arabia and Russia are Qatar and Venezuela. Iran continues to be a challenge to the deal’s progress. The Iranian oil minister said in response to the deal that Iran will continue to maintain its market share, suggesting that the country will not limit its production. Iran continues to pump out oil at increasing rates since sanctions were lifted just last month. A representative from Opec said that production cuts were a possibility of there was widespread cooperation across more oil producing nations.
Apple issued $12bn in bonds today which brought life back to the new issue market which has been stagnant over the past few weeks. Given the extent of economic concerns and uncertainty many issuers have been skeptical to access capital markets this year. Other large and recognized companies such as IBM and Comcast followed Apple’s lead, as well as Prestige Brands Holdings. In spite of the market turmoil this year, the few issuances have been met with adequate demand and have been received well from investors. This is a positive indicator for expectations about economic health. Before today’s issuances, $134bn has been sold year to date. This number compares with $157bn at this time last year. Although a record amount of investment grade debt is set to mature in the next five years, Moody’s believes that improving credit quality and the ability to refinance if necessary should help investment grade issuers. In the high yield segment of the market however, the record amount of debt that is expected to mature in the next five years will not be met with favorable credit or capital market conditions, which could create problems.
Similarly Mexico today issued a total of $2.8bn worth of debt denominated in euros today. Similar to the US issuances which were met with high demand, the demand for Mexico’s bonds was 1.8x the amount that was sold. The country issued six year bonds with a yield of 1.985% and fifteen year bonds with a yield of 3.424%. The ECB is expected to increase monetary easing on top of already low interest rates in the region, which makes the eurozone an attractive place to borrow.
The yuan strengthened against the dollar after the central bank guided the fix 1% higher. In addition to the stronger fix, the currency gained 1.35%. The central bank is attempting to make the currency’s level a more adequate representation of a wider basket of currencies as opposed to just the dollar.