— This is the script of CNBC's news report for China's CCTV on July 12, 2018, Thursday.
In the overnight US stock market, Dow & Jones industrial index lost 0.88%, ending gains of 4 consecutive days; S&P 500 declined 0.71%. Among the major 11 sectors of S&P index, energy, material and industry sectors closed down. At the same time NASDAQ composite index was off 0.55%, when the uncertainty of global trade prospect strengthens, US stocks will introduce the release period of 2nd seasonal earnings in this week: more than 200 companies will publish their performance in the following 2 weeks.
It’s no doubt that global trade dispute will negatively affect the market and its possible that companies will price the trade risk to down grade the prospect of the 3rd season, and that will trigger the market to sale out, even though the market still hold a positive attitude to the profit level of different companies in this earnings season, hoping there is a 20% overall increase in the 2nd season because of the buoyed US economy and tax reform.
In addition, commodity asset dropped significantly, accelerating the market to sale out. Soybean price hit its lowest record since 2008, and oil price also plummeted.
In the overnight, WTI declined 5%, with almost US$70/ barrel and at its lowest level in more than 2 weeks. Brent Crude lost 6.9%.
The heavy fall in oil prices has also led to energy stocks get lost. Oil and gas giant Chesapeake closed down 4.63%, Chevron closed down 3.19%, Marathon oil edged down 2.66%, ConocoPhillips slide 2.36%, and Exxon Mobil was off 1.28%. So why the oil price fall suddenly overnight? Three reasons may lead to market sale off.
First, Libya announced the restoration of eastern crude oil exports. The Libyan state-owned oil company said on Wednesday that the company will cancel the stagnation of some key crude oil export ports after those ports return to the government. That means Libya is likely to resume production, and some analysts expect it will bring hundreds of thousands of barrels a day. The second reason is that we have seen an increase in production in Saudi Arabia. The data shows that Saudi Arabia has increased crude oil production to its highest level since the end of 2016. The market expects that the output of OPEC may gradually pick up in the future. The last reason is because the market is beginning to price the impact of global trade frictions. If trade activity is reduced, there is no doubt that the decline in orders will lead to a reduction in oil demand, which will weigh on the demand side and cause oil prices to fall.
Therefore, these three factors are the 3 negative factors, and at the same time in the overnight trading these 3 factors down weighted oil price, which reached a three-and-a-half-year high. Therefore, WTI price had the worst single-day performance in a year and Brent Crude got the biggest one-day loss of 1 day in 2 years. However, there are still some potential factors in the market that favor oil prices. For example, Iran has made a tough response to US sanctions, saying that if Iran’s oil exports are blocked, the Iranian government will block the Strait of Hormuz. This strait is an important artery for oil transportation in the Middle East. If Iran really takes such measures, it will lead to huge losses in global crude oil supply, causing oil prices to soar. Therefore, in the context of numerous mixed data and events, the further trend of US stocks and oil prices is full of uncertainty.