Crude oil rebounded in NY session Tuesday as driven by reversal in Wall Street. Corporate earnings results were disappointing while new home sales plunged to an 8-month low. However, investors looked forward for Fed Chairman Ben Bernanke's Congressional testimony in Capitol Hill today. The market anticipated Bernanke would downplay recent weak data that might lead to a double-dip recession. He would probably say economic slowdown is temporary and the Fed is ready for new stimulus measures if the economy worsens. The front-month WTI contract settled at 77.58, up +0.88%, yesterday.
Wall Street opened lower in the morning session as corporate earnings were weaker than expected. Earnings of IBM and Texas Instruments, large tech stocks, disappointed as revenues missed market expectations. Goldman Sachs reported it net income tumbled -82% y/y to $613M, the lowest level since end-2008, in 2H10 as trading revenue declined more than anticipated. At the same time, Johnson & Johnson revised down its guidance. The company said earnings excluding specia items will be $4.65-4.75/share this year, compared with consensus of $4.80-4.9. The cut is due to a series of drug recalls. These were then upstaged by a powerful report from Apple Inc. Net income jumped +78% y/y to $3.25B in the third quarter as driven by strong iphone sales which generated $5.33B revenue on 8.4M units.
Economic data released yesterday was mixed. While housing starts slid -5.02% to 549K in June from a downwardly revised 578K in the prior month, building permits surprisingly soared +2.09% to 586K during the month.
The market, however, chose to focus on the positive side and sent stocks higher. DJIA and S&P 500 ended the day +0.47% and +1.1% higher respectively.
Crude oil also rose after the National Hurricane Centre said that a weather system over Puerto Rico and the Dominican Republic has a 60% chance of becoming a tropical cyclone.
Concerning oil inventory, the industry-sponsored API said crude and gasoline inventories fell -0.241 mmb and -0.412 mmb respectively in the week ended July 16. Distillate stockpile, however, rose +0.979 mmb during the week. The market currently forecasts the US Energy Department will report another week of draw for crude inventory but builds in gasoline and distillate stockpiles.
Gold gained +0.83% to settle at 1191.7 as driven by modest safe-haven demand. The Hungarian government raised 35B forint from issuance of the 3-month bills, compared with the 45B forint originally planned. The average yield surged to 5.47%, the highest level in 19 weeks, as the talk with the IMF/EU suspended.
Weekly change in inventory as of 16/07/10
Comparison between API and EIA reports:
API (Jul 16)
EIA (Jul 16 )
Forecast (using API's inventory level)
API collects stockpile information on a voluntary basis from operators of refineries, 76% of the time, using data in the past 4 years.
Source: Bloomberg, API, EIA