Crude oil prices rose sharply on Monday, pushing the Dow higher and offering investors a new fold as an unexpected OPEC+ oil supply cut over the weekend rocked markets early in the second quarter.
At around 1:20 p.m. ET Monday, the S&P 500 (^GSPC) was flat, the Dow Jones Industrial Average (^DJI) was up 0.8% and the tech-heavy Nasdaq Composite (^IXIC) was down 0.9%. .
Crude oil was up more than 6% on Monday, with WTI crude — the US benchmark — trading north of $80 a barrel, while the international benchmark, Brent crude, was trading near $85 a barrel.
A 4.5% gain in shares of Chevron (CVX) helped the blue chip Dow among the leading markets at the start of the week.
On Sunday, the OPEC+ oil cartel – which includes OPEC members as well as Russia – announced it would cut daily production by more than 1 million barrels of oil from May and run until the end of the year.
“Although like OPEC we expect muted demand growth this year, the magnitude of the supply cuts will push the oil market balance sheet into a deficit in 2023, with an even larger deficit in the fourth quarter,” wrote Caroline Bain, chief commodities economist at Capital Economics , in a customer note on Monday.
Oil prices fell to an 18-month low last month as a supply glut and concerns about the global economy rocked the oil market. In addition, the dollar began to rally as investor concerns about the banking crisis weighed on oil.
But as worries of an acute global financial crisis eased, the dollar weakened and WTI rose nearly $10/bbl in the last two weeks of March.
Used oil drums are stacked at a warehouse in Seattle, Washington February 12, 2015 REUTERS/Jason Redmond
A rebound in oil prices may also complicate the imminent abandonment of the Federal Reserve, which has been raising interest rates to curb inflation. Although the Fed’s favored inflationary measures remove food and gas costs, a sharp rise in so-called “headline inflation” – which includes energy prices – could complicate the message of a pause in rate hikes later this year.
The story goes on
Data released on Friday showed that headline inflation as measured by the Personal Consumption Expenditure (PCE) index rose 5% in February from a year earlier; Core PCE showed prices up 4.6% year-on-year in February.
The more closely watched Consumer Price Index showed February headline inflation at 6% yoy. The Fed is targeting 2% inflation.
On the economic data front, Monday brought investors two key US manufacturing figures, with data from both S&P Global and the Institute for Supply Management showing a slowdown in activity in March.
Both indicators showed that manufacturing activity fell in March, with the ISM index falling for the fifth straight month to hit 46.3, the lowest since May 2020. Any reading below 50 for this index suggests to a contraction in the sector; Readings above 50 indicate expansion.
“The March ISM manufacturing report indicates that factory activity has moderated through the end of the last quarter,” Oren Klachkin, senior US economist at Oxford Economics, wrote in a note to clients on Monday.
“We expect the sector to experience its worst year since the global financial crisis – barring the precipitous decline early in the pandemic – as weak demand and tighter credit conditions mean activity slows.”
Monday’s decline in the ISM PMI marked the fifth straight monthly decline and the fourth straight month the index pointed to a slowdown in manufacturing activity.
The ISM Manufacturing Index has been steadily declining since early 2021. (Source: Wells Fargo)
Elsewhere in the markets, a merger in the entertainment world will draw investor attention on Monday after Endeavor (EDR), UFC’s parent company, announced a deal to merge with World Wrestling Entertainment (WWE) to create a new one to form a company trading under the ticker “TKO.”
Endeavor will own 51% of the new company, while WWE will own a 49% stake.
The new company will have an enterprise value of over $21 billion, while the companies reported 2022 sales of $2.4 billion with a 10% compound annual revenue growth rate since 2019, the companies said in a press release.
Endeavor CEO Ari Emanuel will lead the new company, with Dana White serving as President of UFC and Nick Khan overseeing WWE. WWE founder Vince McMahon will serve as executive chairman of the new company.
Shares of WWE, which were up more than 30% this year by the close on Friday amid ongoing speculation about a takeover, fell about 4% on the news Monday. Endeavor shares fell 8% in early afternoon trading.
Tesla (TSLA) shares were also in focus early Monday after the company announced first-quarter delivery numbers that set a new record for the electric carmaker as a price cut boosted overall demand for Tesla vehicles.
The company delivered more than 422,000 cars in the first quarter and produced more than 440,000 new vehicles in the first three months of the year.
Tesla stock fell as much as 6% on Monday.
Tech stocks were also broadly under pressure to start the second quarter after leading a rally for the markets in the first three months of the year, with shares in Amazon (AMZN), Microsoft (MSFT) and Nvidia (NVDA) all fell more than 1% on Mondays.
Investors will also be keeping an eye on Disney’s annual shareholders meeting, which is scheduled to begin at 1:00 p.m. ET.
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