Wall Street Breakfast: What Moved Markets This Week

Historic oil price crash

The biggest story of the week was in the energy sector, where prices of May WTI crude contracts plunged into negative territory on Monday for the first time ever. Markets are awash in so much crude that storage space is becoming harder to find, and traders are struggling to find enough ships, railcars, caverns and pipelines to store the fuel. Demand is down 30% worldwide amid travel restrictions and lockdowns to contain the spread of the coronavirus, while output cuts from the world’s largest producers came too late to the show.
Go deeper: ‘Negative Oil And What It Means For Oil Prices Going Forward’ by HFIR.

Shale bust

Continental Resources (NYSE:CLR), the company controlled by billionaire Harold Hamm, ceased production in North Dakota and shut in most of its wells in the state’s Bakken shale field. According to Bloomberg, the producer also declared force majeure on at least one of its contracts this week after crude went negative. Betting economic growth would lift prices, Continental was more exposed to weak prices because it didn’t hedge future production with derivatives, a common strategy within the industry.
Go deeper: Largest oil ETF restructures to stave off collapse.

First oil major to cut dividend

The world’s largest oil companies have been known for their dividend safety for years, but that may be changing amid a historic rout in crude prices. “In this extraordinary situation, we have decided to reduce the cash dividend for the first quarter 2020 by 67% [to $0.09],” Norway’s Equinor (NYSE:EQNR) said in a statement. While most oil majors have already slashed investments and buybacks, the latest could be a signal of what’s to come from others in the industry, including Royal Dutch Shell (RDS.A, RDS.B), BP (NYSE:BP), Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), Total (NYSE:TOT) and ConocoPhillips (NYSE:COP).

Netflix is booming (for now?)

Reporting earnings on Tuesday, Netflix (NASDAQ:NFLX) said it added a record 15.8M paid subscribers during the first quarter, smashing the 8.5M expected by Wall Street. While the stock rose over 3% AH on the news (it’s up 34% YTD), it quickly erased gains after the executive reaction to the numbers. While cash flow isn’t an issue (productions have shut down), the streaming giant said there was heavy uncertainty surrounding the effects of COVID-19. As governments lift home confinement, it expects viewing and growth to decline.
Go deeper: Netflix is still alive and healthy, writes Daniel Jones.

Big push into India

Facebook (NASDAQ:FB) revealed its largest investment ever, a $5.7B injection into Indian telecom Reliance Jio in return for a 9.99% stake. More records… It’s the biggest investment for a minority tech stake in the world and the biggest foreign direct investment into Indian technology. Jio operates various broadband, mobile services and online commerce platforms, prompting speculation of a “super” app that could handle shopping, travel and payments or other collaborations.

Court to decide fate of Victoria’s Secret

Private-equity firm Sycamore Partners said it wants to scrap plans to take control of Victoria’s Secret, a deal reached back in February. The high-profile legal test will decide whether the coronavirus allows a buyer to walk away from an agreement reached before the disease was declared a pandemic. L Brands (NYSE:LB), parent of the lingerie brand, closed its U.S. stores in March, furloughed the majority of its workers and skipped April rent payments, moves Sycamore says were in violation of the proposed transaction.

Public companies raided the PPP pantry

A bright spotlight was thrown on where the funds from the original Paycheck Protection Program designed for small business went. The first-come, first-serve U.S. government aid program saw at least $243M of the total $349B funneled to publicly traded companies, including 15 with market caps of over $100M, but the program ran dry before many mom-and-pop operations and smaller independent businesses were able to apply. Shake Shack (NYSE:SHAK) has since agreed to give back its “small business” loans, as well as Ruth’s Chris (NASDAQ:RUTH).

On the economy

Another $484B in U.S. coronavirus aid was also approved, replenishing PPP loans and SBA disaster assistance, as well as grants to hospitals and COVID-19 testing. The funding comes as the U.S. economy reels and a national debate – initially centered around Georgia – ensured on how let businesses reopen. Data on Thursday showed 4.4M Americans filed for unemployment benefits last week, bringing the 5-week total to more than 26M and wiping out all job gains since the global financial crisis.

Gilead drug trial

Gilead (NASDAQ:GILD) shares whipsawed on Thursday for the second time in a week after a summary of its remdesivir trial appeared to show that it was a failure against COVID-19. Fighting back, the drugmaker said that the results were mistakenly published and removed from the WHO’s website, and referred to the findings as “inappropriate characterizations.” Gilead’s own clinical trial of the therapeutic is slated to be released at the end of the month.

Surging meat prices coming to a store near you

Closings of the nation’s meat processors picked up steam, with Tyson’s (NYSE:TSN) Waterloo, Iowa plant being the latest. The situation got so dire in the state that the National Guard was even activated to protect supplies. It also led to some weird action, with prices for hogs heading sharply lower but prices doubling for pork belly (used to make bacon). Last week, Smithfield Foods shut down a pork processing plant that accounts for up to 5% of production after more than 500 of its workers were infected and one died.

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