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Surging Oil Prices Aren't Fazing Stock Market Bulls


5 Things in the Markets to Know Right Now

  • The Dow Jones Industrial Average is looking to extends its five-day win streak.
  • U.S. crude continues to test four-year highs, taking gas prices to $2.86 per gallon.
  • Iran and Israel traded rocket fire over the Golan Heights Thursday as Gulf tensions escalate.
  • Roku’s (ROKU) Chief Financial Officer tells TheStreet’s Executive Editor Brian Sozzi strong growth in the streaming industry will be the norm. Roku’s earnings beat after the close on Wednesday.  
  • The forward price-to-earnings multiple of the S&P 500 has dropped from a high of 18.6 on January 23 to a low of 15.9 on May 3, according to Yardeni Research.

Market Overview

U.S. stocks look set for another session of energy-driven gains Thursday, with a renewed surge in oil prices sparked by military tensions in the Gulf region, but a cautious tone continues to blunt equity market sentiment following President Donald Trump’s decision to withdraw from a multi-lateral deal designed to limit Iran’s nuclear weapons capability.

Early indications from U.S. futures prices suggest a 40 point opening bell gain for the Dow Jones Industrial Average , a move that would extend its five-day winning streak, while contracts tied to the S&P 500 point to a 5.5 point gain for the broader benchmark. Nasdaq Composite Index  futures suggest a 16 point gain for the tech-heavy index.

Action Alerts PLUS holding Comcast Corp. (CMCSA) shares were an early mover of note, falling 0.23% to $30.66 after the Financial Times reported that it may need to include a $2.5 billion “break fee” in any new bid for the media assets of Rupert Murdoch’s 21 Century Fox (FOX)  that are currently being offered to Walt Disney Co. (DIS)

Tesla (TSLA) shares were also in focus, falling 0.15% to $306.40 each following news that the U.S. National Transportation Safety Board will investigate the crash of a Tesla Model S that killed two teenagers, and injured a third, in Fort Lauderdale earlier this week. The NTSB said the probe will be focused on “emergency response in relation to the electric vehicle battery fire, including fire department activities and towing operations.”

Oil, however, may yet again drive gains for the Dow, with both Chevron (CVX) and ExxonMobil (XOM) edging higher in pre-market trading thanks to a sustained surge in global crude prices. Israel and Iran traded rocket fire overnight near the Golan Heights on the Syrian border in some of the most intense fighting in the region in several years. The Israel Defense Forces said it intercepted several rockets fired from Syria, which it said were launched by the elite Quds Force division of the Iranian Revolutionary Guard.

Tesla in the spotlight again.
Tesla in the spotlight again.

White House Press Secretary Sarah Sanders told Fox News that the clashes were a “further demonstration that the Iranian regime cannot be trusted and another good reminder that the president made the right decision to get out of the Iran deal.” Russia’s Deputy Foreign Minister, Mikhail Bogdanov, told the TASS news agency that the Gulf situation was “very alarming. It causes concern. There should be work to de-escalate the tensions.”

Brent crude contracts for July delivery, which is largely accepted as the global pricing benchmark, were seen 0.6% higher from their Wednesday close in New York and changing hands at $77.65 per barrel in early European dealing. WTI futures contracts for June delivery, which are more tightly correleated with domestic gasoline prices, were marked 0.65% higher at $71.61, extending its month-to-date gain past 6.5%.

U.S. gasoline prices were quoted at an average cost of $2.86 per gallon, according to the comparison website Gasbuddy.com, up 18% from the same period last year and the highest since November 2014.

European stocks were little changed in the opening hours of trading, with several markets closed for the traditional Ascension Day holiday. Germany’s DAX, however, was marked 0.63% to the upside at 13,025.69 points thanks in part to Siemens AG  (SIEGY) — one of the performance index’s heaviest weights — which extended gains following a stronger-than-expected set of first quarter earnings yesterday and a boost to the engineering group’s full year outlook.

Britain’s FTSE 100 was also on the rise, gaining around 0.4% in a broad-based surge paced by a 4.24% gain for the Royal Bank of Scotland Plc (RBS) , which agreed a smaller-than-expected $4.9 billion settlement with the U.S. Department of Justice yesterday for its role in selling mortgage-backed securities in the United States in the run-up to the 2008 financial crisis. The deal, which included a new $1.44 billion charge against the state-owned bank’s second quarter earnings, could pave the way towards the government selling its 70% stake in what was once the biggest bank in Europe.

U.K. investors were also focused on currency markets, marked 0.05% lower against the U.S. dollar at 1.3550 in early London trading, ahead of the Bank of England’s rate decision later today in London, where expectations of a hike in the so-called Bank Rate have plunged from 90% to 10% following a string of weaker-than-expected economic data releases suggesting the U.K. economy could be facing the potential for recession.

What makes today’s #BoE meeting intriguing is that the likelihood of possible outcomes – from a dovish hold to a 25bp hike – is fairly evenly distributed. If no hike, initial reaction:
(1) MPC vote split
(2) Soft 1Q data transitory or structural
Risk-reward favours $GBP upside pic.twitter.com/btHYoKfW2f

— Viraj Patel (@VPatelFX) May 10, 2018

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked modestly lower than its year-to-date high of 93.12 during European trading as benchmark government bond yields eased amid the broader financial market caution, pulling 10-year note yields to 2.978%.

Overnight in Asia, the region-wide MSCI ex-Japan index gained 0.68% while the Nikkei 225 bumped 0.4% to the upside thanks to energy-sector stocks and the dollar’s modest decline. Markets in Japan were also boosted by a solid 2.3% gain for Toyota Motor Co. (TM) after the world’s biggest carmaker revealed a $2.7 billion sharebuyback yesterday following record profits for its 2018 fiscal year.

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