Calm Down, Investors: OPEC Meetings Themselves Hold Little Weight

Members of the Organization of the Petroleum Exporting Countries and other oil producers are set to meet this Thursday to discuss extending output cuts. The current cuts, an output reduction of 1.8 million barrels per day for six months, were decided in November and implemented on January 1.

The cuts are expected to be extended by nine months under the urging of the Saudi Arabia and Russia, the world’s top two oil producers.

Early in the week, oil prices were up in anticipation of the meeting, in addition to oil stocks, including Exxon Mobil Corporation XOM and BP plc (ADR) BP.

 

On Monday, share prices took a dive, though, after the news that Iraq was resistant to longer extensions, but returned to pre-market levels when Saudi energy minister, Khalid al-Falih, flew to Iraq to gain its support for a nine-month extension.

A Brief Look Back

Volatile trades are to be expected in the coming week, but investors should be cautious of placing too much stock in any sharp movements in the near term.

Looking back at the week before and after the past five OPEC meetings, there doesn’t seem to be any trend in share price movement in the short term.

The weeks surrounding OPEC’s 167th meeting on June 5, 2015, and 169th meeting on June 2, 2016, highlight the vast different movements that can occur:

  • The 167th meeting was preceded by a near linear drop in prices among top U.S. exchange-traded oil stocks.
  • The 169th meeting was preceded by a drop in prices, which returned to their starting value just before the meeting. The following week saw a rise in prices, which within another week had lost any gains made.

After both meetings, oil shares saw large price shifts in the longer term — the six months following each meeting — bouncing between highs and lows differing by over 15 percent.

What To Keep In Mind

The OPEC meeting last December had a distinctly noticeable impact on prices due to organization’s decision to implement a production cut for the first time since 2008.

Investors should be wary of speculating based on past meetings; the only evident trend in their effect on oil share prices is that there is no trend.

Investors should also note that OPEC’s effect on prices is ultimately determined by its members’ willingness to abide by its decisions, and they should pay attention in the long run to see if the petroleum exporting countries stick to their obligations.

The Market In 5 Minutes 5/23/2017

  • Technology-focused Gene Munster peeked into another realm of reality last week at the Cannes Film Festival and discovered filmmakers eagerly awaiting progress in virtual reality:
  • BlackBerry Ltd (BBRY) continued its bullish momentum on Monday when the company announced a new deal with Ford Motor Company (F) to expand the use of the QNX operating system in Ford automobiles:
  • Buffalo Wild Wings (BWLD) will hold an important board vote at its annual investor meeting on June 2, hoping to settle the battle the company is embroiled in with activist investor Marcato Capital Management:
  • Americans and investors hoping for healthcare reform may have the strongest congressional motivator of all on their side, fear:
  • The government of Saudi Arabia pledged $20 billion to Blackstone (BX)’s newly created infrastructure investment vehicle with the ultimate aim of raising another $20 billion from other investments and ultimately bring the total to $100 billion:

THE WALL STREET JOURNAL

  • President Donald Trump on Tuesday will propose a plan he says will balance the federal budget in a decade on the strength of substantially faster economic growth and cuts to taxes and government safety-net programs:
  • A group linked to North Korea is highly likely behind this month’s global ransomware assault, and the attack more closely resembles the behavior of a crime ring rather than a government-orchestrated campaign, a cybersecurity researcher said
  • A contentious tax dispute between Australia and Chevron Corp. (CVX) could cost the company billions of dollars and open a new front in global efforts to crack down on the aggressive tax strategies used by many multinational corporations:
  • A resurgent music industry, fueled by the rise of streaming services, is tempting the parent company of Universal Music Group to cash in with a public stock offering:

REUTERS

  • U.S. President Donald Trump’s proposal to sell half of the United States’ strategic oil reserve surprised energy markets on Tuesday since it counters OPEC’s efforts to control supply in order to boost prices
  • Nokia has settled its legal battle with Apple (AAPL) with a new patent license agreement and also signed a business deal with the U.S. giant, surprising investors who had expected the dispute to drag on:
  • The CEOs of two major American companies – retailer Target Corp (TGT) and agribusiness Archer Daniels Midland Co (ADM) – will offer countering views in a hearing before U.S. lawmakers on Tuesday on a proposed border adjustment tax:

    BLOOMBERG

  • Since the day it was created, Democrats loved it, Republicans hated it and Wall Street, at best, tolerated it. The fate of the Consumer Financial Protection Bureau and its chief, Richard Cordray, is in the hands of a Washington appeals court that will hear arguments Wednesday
  • OPEC’s second-biggest producer is also its biggest cheater. And if past is prologue, that lengthens the odds the group will be able to squeeze too many more price gains out of its output cuts:
  • Inside the Whole Foods Market (WFM) in midtown Manhattan at lunchtime, it’s easy to forget that the organic supermarket chain is facing its biggest crisis since going public in 1992:
  • White House budget director Mick Mulvaney has floated an idea to bring down drug prices that’s both promising and — if other Republicans can be persuaded to go along — bipartisan:

NY POST

  • The often maligned crypto-currency continued its incredible run on Monday, soaring to nearly $2,200 at 10:30 p.m. — leaving it up 124 percent this year and ahead nearly 400 percent over the past 12 months, according to Coindesk:

CONSUMER

Toll Brothers (TOL) Reports Q2 EPS $0.73 vs $0.63 Est; Revenue $1.363B vs $1.27B Est.
AutoZone (AZO) Q3 EPS EPS $11.44 vs $11.66 Est, Sales $2.62B vs $2.71B Est
Take-Two (TTWO) Reports Q4 EPS $0.89 vs $0.48 in Same Qtr. Last Year, Sales $571.6M vs $377.2M YoY
DSW (DSW) Reports Q1 Adj. EPS $0.32 vs $0.35 Est., Sales $691.1M vs $684.9M Est.

ENERGY

INDUSTRIALS

Raven Industries (RAVN) Reports Q1 EPS $0.34 vs $0.24 Est., Sales $93.5M vs $79.9M Est.
Nordson (NDSN) Reports Q2 EPS Adj. $1.35 vs $1.31 Est., Sales $496M vs $472.24M Est.

FINANCIALS

Independence Holding Co. (IHC) Reports Q4 EPS $0.49 vs $0.28 in Same Qtr. Last Year, Sales $78.871M vs $124.602M

HEALTHCARE

Agilent (A) Reports Q2 Adj. EPS $0.58 vs $0.48 Est., Sales $1.1B vs $1.05B Est.
Quotient (QTNT) Ltd Reports Q4 EPS $(0.69) vs $(0.74) Est., Sales $5.526M vs $4.9M Est.

TECHNOLOGY

Momo (MOMO) Reports Q1 EPADS $0.44 vs $0.31 Est; Revenue $265.2M vs $242.82M Est

ECONOMIC FIGURES

08:30 a.m. Redbook (YoY)

08:55 a.m. Redbook (MoM)

09:45 a.m. Services PMI

09:45 a.m. Manufacturing PMI

10:00 a.m. Richmond Services Index

10:00 a.m. Richmond Manufacturing Index

10:00 a.m. Richmond Manufacturing Shipments

10:00 a.m. Richmond Fed Manufacturing Index

10:00 a.m. New Home Sales

10:00 a.m. New Home Sales (MoM)

11:30 a.m. 52-Week Bill Auction

11:30 a.m. 6-Month Bill Auction

11:30 a.m. 4-Week Bill Auction

11:30 a.m. 3-Month Bill Auction

1:00 p.m. 2-Year Note Auction

3:15 p.m. FOMC Member Kashkari Speaks

5:00 p.m. FOMC Member Harker Speaks

Analyst & Shareholder Meetings

  • 8:00 a.m. GNC Holdings (GNC)
  • 9:00 a.m. Merck (MRK)
  • 9:00 a.m. Nielsen (NLSN)
  • 9:00 a.m. Xerox (XRX)
  • 10:00 a.m. Southwestern Energy Co. (SWN)
  • 10:00 a.m. Wendy’s (WEN)
  • 10:30 a.m. Urban Outfitters (URBN)
  • 12:00 p.m. Amazon (AMZN)
  • 1:30 p.m. NVIDIA (NVDA)
  • 2:00 p.m. Skechers (SKX)
  • 2:00 p.m. Tableau (DATA)

UPGRADES

  • JP Morgan Upgraded McKesson (MCK) from Neutral to Overweight
  • Goldman Sachs Upgraded Atwood Oceanics (ATW) from Sell to Neutral
  • Bank of America Upgrades Reliance Steel & Aluminum (RS) From Neutral to Buy

DOWNGRADES

  • Wells Fargo Downgraded Xilinx (XLNX) from Outperform to Market Perform
  • Goldman Sachs Downgraded Helmerich & Payne (HP) from Neutral to Sell
  • Wells Fargo Downgrades Papa Murphy’s (FRSH) From Outperform to Market Perform

Deal Talk

  • Chinese billionaire Jack Ma’s Ant Financial is moving closer to getting regulatory approval to buy MoneyGram (MGI), The New York Post has learned — despite concerns in Washington about money laundering.

  • PPG Industries (PPG) remains interested in negotiating a “consensual” deal withAkzo Nobel, even as the Dutch rival paint maker resists its 26.3 billion euro ($29.5 billion) takeover offer, PPG’s top executive said on Tuesday

US OPTIONS RECAP

  • GIS Gen Mills Oct 62.5 Calls: 9000 @ ASK $0.85: 10k traded vs 1647 OI: Earnings 6/29 Before Open (est) $56.67 Ref 
  • TOL Toll Brothers May 26th 37.5 Calls Sweep: 618 @ ASK $1.25: 1041 traded vs 153 OI: Earnings tmrrw Before Open $37.90 Ref 
  • HPE Hewlett-Packard Ent May 26th 19.0 Calls Sweep: 2233 @ ASK $0.15: 4544 traded vs 2087 OI: Earnings 5/31 After Close $18.80 Ref 
  • CXW CoreCivic Sep 27.0 Puts Sweep: 1000 @ ASK $1.45: 1229 traded vs 152 OI: Earnings 8/2 After Close (est) $30.65 Ref 
  • SQ Square Jun 22.0 Calls: 500 @ ASK $0.35: 1490 traded vs 1021 OI: Earnings 8/3 After Close (est) $20.86 Ref 
  • TTMI

18 Biggest Mid-Day Losers For Thursday

  • Ascena Retail Group Inc ASNA 30.14% shares dipped 37.8 percent to $1.75 after the company lowered its Q3 and FY17 guidance.
  • Endologix, Inc. ELGX 35.96% shares dropped 35 percent to $4.38 after the company issued an update on Nellix System US regulatory status. Following meeting with the FDA, Endologix will seek US approval by conducting a confirmatory clinical study with the IFU and Gen2 device design. Stifel Nicolaus downgraded Endologix from Buy to Hold.
  • Stein Mart, Inc. SMRT 37.06% shares tumbled 34.7 percent to $1.11 after the company reported weak Q1 results and suspended its quarterly dividend.
  • Gol Linhas Aereas Inteligentes SA (ADR) GOL 26.05% shares declined 23.4 percent to $11.76 on fears that another political scandal will result in the impeachment of President Michel Temer. Temer, who ran on a platform of economic reform, has been in office for less than a year, but a new report by Brazilian newspaper O Globo has accused Temer of paying off a potential witness in an ongoing graft probe.
  • Banco Bradesco SA (ADR) BBD 18.73% shares tumbled 18.1 percent to $8.22 session. Stocks of US-listed Brazil-based companies seeing a substantial downside amid bribery allegations related to President Temer.
  • Banco Santander Brasil SA (ADR) BSBR 20.48% shares declined 17.8 percent to $7.26.
  • Companhia Brasileira de Distribuicao-ADR CBD 15.1% shares dipped 17.4 percent to $19.63.
  • Itau Unibanco Holding SA (ADR) ITUB 18.24% shares fell 16.3 percent to $10.50 after dipping 3.28 percent on Wednesday.
  • Gafisa SA (ADR) GFA 16.57% shares slipped 16 percent to $7.35.
  • Companhia Siderurgica Nacional (ADR) SID 17.3% shares dropped 15.6 percent to $2.00.
  • Companhia de Saneamento Basico (ADR) SBS 17.3% shares declined 15.7 percent to $8.48.
  • Gerdau SA (ADR) GGB 14.58% shares dipped 15.2 percent to $2.71 after declining 3.19 percent on Wednesday.
  • Petroleo Brasileiro SA Petrobras (ADR) PBR 16.57% dropped 14 percent to $8.85 amid bribery allegations related to President Temer.
  • Banco Bradesco S.A. BBDO 16.42% shares fell 13.7 percent to $7.98.
  • Pure Storage Inc PSTG 13.84% shares plunged 10.5 percent to $10.45. Morgan Stanley downgraded Pure Storage from Overweight to Equal-Weight.
  • Teekay Corporation TK 8.06% fell 8.3 percent to $6.66. Teekay reported a Q1 loss of $45.3 million on revenue of $543.5 million.
  • Cisco Systems, Inc. CSCO 7.61% shares declined 7.3 percent to $31.35. Cisco reported better-than-expected earnings for its third quarter, but issued a weak revenue forecast for the current quarter. Cisco also announced plans to cut an additional 1,100 jobs.
  • ZTO Express (Cayman) Inc (ADR) ZTO 5.84% shares slipped 6 percent to $13.20. ZTO reported Q1 adjusted earnings of $0.10 per share on sales of $379.9 million. The company also named Hongqun Hu as COO.