Headwinds in Energy

The sharp decline in oil prices this year has been a headwind for the energy sector in our view. Oil prices are currently lower than they were when OPEC held its last meeting in November of last year. Sentiment towards the energy sector has turned negative resulting in weak stock performance across the energy sector except for the energy infrastructure which has held steady. Initially, traders were skeptical of OPEC's compliance with its production cut agreement. However, OPEC compliance has been a very good 99%, as of April 30, 2017. The biggest factor right now is U.S. crude oil inventories. In the first quarter, U.S crude oil inventories increased 12 out of 13 weeks including one of the largest crude oil inventory increases in U.S. history in February. We believe traders want evidence that oil inventories are declining and U.S. inventory numbers that come out weekly offer the most readily available information. The increases in U.S. oil inventories are not a surprise to us as the first quarter is a seasonal period when inventories typically rise.

U.S. Oil Production is Increasing

U.S. crude oil production is rising, with most of the increase coming from shale production. But think about this, U.S. shale oil production represents less than 5% of the total global oil supply. U.S. shale production is economic at $50 per barrel and in some basins U.S. shale oil is economic with oil in the $40s.  However, we estimate that oil production from U.S. shale will likely increase by 300,000-500,000 barrels per day in 2017.  Don't forget that global oil demand is forecasted to increase by approximately 1.4 million barrels per day in 2017.

A Battle for Global Market Share

Traders want to create a boxing match pitting U.S. shale versus OPEC in a battle for global market share, in our view. But we don’t think this is likely to happen, as the global oil markets are going to need both U.S. shale and OPEC to increase oil production for two reasons. First, global oil demand is growing by over 1 million barrels per day and the U.S. and OPEC are two of the lowest costs suppliers of crude oil. Second, we have only spent time so far talking about approximately 32 million barrels of production from OPEC and 9 million barrels of U.S. production, throw in Russia and we have only accounted for approximately half of global oil supply. Very few are talking about what is happening with the other half of the global oil supply. Capital investment related to the other half of the global oil supply which represents say 40-50 million barrels per day of production is expected to decline for the third consecutive year. Reservoir engineering and geology 101 tells us that oil production declines every year. If capital investment is insufficient to offset natural production declines then production volumes will fall. We believe the lack of capital investment in almost half of the global oil supply will result in declines in oil production, and that U.S. shale and OPEC will fill the gap created by the production shortfall associated with these declines in the years to come.

Extension of Production Cuts Could Remove Uncertainty

OPEC's production cut agreement is likely to be extended at the bi-annual OPEC meeting on May 25th in our view. All signals coming from the major players such as Russia and Saudi Arabia point to an extension of the agreement. While the production cut agreement would be likely be extended through the end of the year, some recent news organizations have reported that an extension of the cuts into 2018 is being discussed.  This would be great news for oil prices.  Regardless, the OPEC meeting should remove significant uncertainty from the current global oil markets. Second, we expect to see a consistent reduction in U.S. crude oil inventories very soon.  We are entering the seasonal period when U.S. oil inventories decline most weeks. What is most encouraging to us is what has happened over the last 6 weeks in U.S. crude inventories. In 5 out of the last 6 weeks, the change in U.S. oil inventories was at or below the low end of the 5-year range. If this trend continues, there will be some substantial declines in U.S. inventories in the weeks to come. Look what happened yesterday! Another larger than expected inventory decline helped move oil prices up a little over 3%. So in general, we still believe that oil prices will range between $50 and $60 per barrel in 2017.

While the biggest factor impacting the entire energy sector right now is oil prices, what’s often overlooked is the energy sector is more than just oil. There’s also the oil pipelines, natural gas pipelines and natural gas liquids pipelines and other types of assets. These are steady, fee-based driven assets that are somewhat agnostic to oil and natural gas prices. Their cash flow and revenues and growth is derived primarily from volumes. We believe the U.S. energy sector is poised to become a critical long-term player in supporting global energy demand growth. As a result, we expect U.S. volume growth to occur in both oil and natural gas and midstream companies will play a critical role in providing infrastructure that connects areas of crude oil and natural gas supply to areas of crude oil and natural gas demand.

Energy: A Disruptive Technology

The U.S. energy sector serves a basic need and is critical to every sector. We are moving into a new era of low cost energy that could significantly boost global economic growth. The global energy landscape is changing.  We believe shale oil and gas is here to stay. The U.S. is becoming a significant supplier of low cost energy to the rest of the world due to technology. A recent report by McKinsey labeled shale oil and gas as a disruptive technology.  We agree. The U.S. energy sector is in transition requiring energy companies to be agile moving forward.

US energy stocks sink

U.S. stocks are declining Thursday as oil prices continue to plunge and energy companies take sharp losses. Health insurers are a bit higher and hospitals are lower as Congress prepares to vote on a bill intended to roll back much of former President Barack Obama's health care law.

KEEPING SCORE: The Standard & Poor's 500 index lost 5 points, or 0.2 percent, to 2,382 as of 12:35 p.m. Eastern time. The Dow Jones industrial average lost 87 points, or 0.4 percent, to 20,870. The Nasdaq composite gave up 15 points, or 0.2 percent, to 6,057. The Russell 2000 index of small-company stocks dipped 10 points, or 0.7 percent, to 1,381. On the New York Stock Exchange, three out of every four stocks fell.

ENERGY: U.S. benchmark crude futures shed another $1.94, or 4.1 percent, to $45.88 a barrel in New York. Brent crude, the standard for international oils, fell $1.97, or 3.9 percent, to $48.82 a barrel in London. Oil was already trading at its lowest price since November and energy companies declined along with it. Exxon Mobil skidded $1.05, or 1.3 percent, to $81.65 and Marathon Oil lost 75 cents, or 5.1 percent, to $14.10.

HEALTH VOTE: House Republicans planned a vote on a revised bill rolling back much of the Affordable Care Act of 2010. The new legislation would rework subsidies for private insurance, limit federal spending on Medicaid for low-income people and cut taxes on upper-income individuals used to finance Obama's overhaul. The House vote is expected to be close and it's not clear if the bill can pass the Senate, or how Senators might change it if it does.

Health insurers and drugmakers mostly traded higher while hospitals fell. Animal health products maker Zoetis and prescription drug distributor AmerisourceBergen rose after they delivered their first-quarter reports.

NO LIKES: Facebook's first-quarter profit and sales were stronger than expected, but the social network's stock dipped $1.36 to $150.44. Facebook's stock is up 30 percent this year and is trading at all-time highs.

HOUSEHOLD GOODS: Church & Dwight, which makes Arm & Hammer baking soda, Trojan condoms and OxiClean cleaning products, raised its profit estimate after its first-quarter results were better than analysts expected. Its stock rose $1.98, or 4.1 percent, to $50.73. Frosted Flakes and Pop Tarts maker Kellogg posted a larger profit than excepted and its stock picked up 82 cents, or 1.2 percent, to $69.76 even though the company's sales weren't as high as investors had hoped.

FED IN FOCUS: On Wednesday the Federal Reserve left interest rates unchanged, as investors expected. However the Fed said it expects the economy to recover from its sluggish growth in the first quarter, and that's a hint the central bank expects to raise rates again soon. That's aiding bond yields and the dollar.

Bond prices dropped. The yield on the 10-year Treasury note rose to 2.36 percent from 2.32 percent.

BANKING ON IT: Tennessee-based First Horizon agreed to buy North Carolina's Capital Bank Financial in a deal the companies valued at $2.2 billion. They said it will make one of the largest regional banks in the Southeastern U.S. However investors were far from excited and both stocks slumped. Capital Bank fell $3, or 7.1 percent, to $39.05 and First Horizon National declined 67 cents, or 3.6 percent, to $18.15.

HANGING UP: Telecommunications companies slumped after Level 3 Communications and CenturyLink both disappointed Wall Street with their first-quarter results. Level 3 dropped $3.33, or 5.5 percent, to $57.09 and CenturyLink sank $2.21, or 8.7 percent, to $23.20.

METALS PRICES: Precious metals prices dropped further. Gold sank $16.80, or 1.3 percent, to $1,231.70 an ounce. Silver fell 18 cents, or 1.1 percent, to $16.37 an ounce. Copper lost 3 cents, or 1.3 percent, to $2.51 a pound.

FASTER PACE: Fitness tracking device maker Fitbit jumped 70 cents, or 12.3 percent, to $6.38 after its first-quarter results were stronger than analysts expected.

CURRENCIES: The dollar turned lower and slipped to 112.48 yen from 112.64 yen. The euro rose to $1.0975 from $1.0906.

OVERSEAS: The CAC 40 in France rose 1.4 percent following a debate between the French presidential candidates. Emmanuel Macron and Marine Le Pen will face off in the final round of voting Sunday, and Macron maintains a large lead in the polls. He is perceived to be more business-friendly and is an advocate of France's continued use of the euro and membership of the European Union. That helped send the euro higher Thursday.

Germany's DAX rose 1 percent and the FTSE 100 index in Britain added 0.2 percent.

The South Korean Kospi added 1 percent and Hong Kong's Hang Seng edged 0.1 percent lower. Japan's market remained closed for a holiday.

Oil prices ease on smaller-than-expected US crude stock drop, weak gas demand

Oil prices pared gains on Wednesday after U.S. government data showed a smaller-than-expected decline in domestic crude inventories and weak demand for gasoline, feeding concerns about a supply glut.

Futures firmed a bit as the U.S. dollar weakened following the Federal Reserve's decision to leave interest rates unchanged. A softer dollar makes greenback-denominated commodities like crude oil more affordable to holders of other currencies.

U.S. West Texas Intermediate (WTI) crude was up 5 cents at $47.71 a barrel by 2:04 p.m. ET (1604 GMT), after earlier dipping to a five-week low of $47.30. Benchmark Brent crude was up 20 cents at $50.66 a barrel, paring earlier gains.

The U.S. Energy Information Administration (EIA) said weekly crude stocks fell by 930,000 barrels to 527.8 million, less than half the 2.3 million-barrel draw that had been forecast.

"U.S. domestic production rose again, and continues its steady climb," said John Kilduff, partner at energy hedge fund Again Capital in New York. He noted that a sharp decline in imports turned what would have been an increase in stocks into a small drawdown.

EIA data also showed gasoline stocks rose by 191,000 barrels, which was much less than the 1.3 million-barrel gain that had been forecast. However, gasoline demand slipped 2.7 percent over the last four weeks from the same period a year ago.

"This is continuing a trend since the beginning of the year in which sales have been lower and that is casting a shadow on the market and pressuring crude oil prices," said Andrew Lipow, president of Lipow Oil Associates in Houston,

"Gasoline demand is going to be the story going forward."

The data also provided an update on growth in U.S. oil production, a key factor that has kept a lid on price gains driven by output cuts elsewhere. U.S. output was up 28,000 barrels a day, according to preliminary weekly figures that are later revised.

While the market remains fixated on U.S. production, oil investors continue to watch whether producing countries have been complying with their 2016 deal to cut output around 1.8 million barrels per day (bpd) by the middle of the year.

Russia said on Wednesday that as of May 1, it had curbed output by more than 300,000 bpd since October. Moscow is contributing the largest production cut outside OPEC.

This means Russia has achieved its reduction target a month ahead of schedule, just as the latest Reuters survey of OPEC production showed compliance had fallen slightly.

OPEC compliance with its production-cutting deal slipped to 90 percent from a revised 92 percent in March largely due Angola pumping more crude oil and higher-than-expected output from the United Arab Emirates, the Reuters survey showed.

News on Tuesday that rival factions in Libya's long-simmering civil conflict had made progress toward a political solution also weighed on oil market sentiment, analysts told CNBC.

A resolution would help likely boost Libyan oil output that has regularly been curbed throughout the conflict. On Monday, Libya's National Oil Corporation reported its production rose to the highest level since December 2014.

WTI fell 2.4 percent on Tuesday, extending losses after it broke through last week's low of $48.20 a barrel, a key technical support level. In the five minutes after the price breached that level, more than 50,000 U.S. contracts traded, representing about 10 percent of total trade at that time on Tuesday.

Oil Decline Eases as Industry Said to Report Stockpile Plunge

Oil futures pared losses in New York after a U.S. industry report was said to show a drop in crude and gasoline stockpiles.

The American Petroleum Institute’s tally for American crude supplies shrank by 4.16 million barrels last week, and the one for gasoline fell by 1.93 million, people familiar with the data said Tuesday. In an Energy Information Administration report due Wednesday, crude stockpiles are forecast to have decreased, while fuel supplies are seen rising.

Oil has fallen the past two weeks on concern that increasing U.S. crude production will offset efforts by the Organization of Petroleum Exporting Countries and its allies to eliminate a global supply glut. OPEC will meet again May 25 in Vienna to decide whether to extend the cuts through the second half of the year. There seems to a be a general consensus to do so, Khalid Al-Falih, the Saudi minister of energy and industry, said last week. Industry data showed American rigs targeting oil rose to the highest level in two years.

“The reaction is warranted given a rather bullish set of stats,” Kyle Cooper, director of research with IAF Advisors in Houston, said by telephone. “If the EIA in some fashion confirms these draws and crude is unable to rally, then I’d say it’s an extraordinarly bearish price reaction.”

West Texas Intermediate for June delivery traded at $48.13 a barrel as of 6:02 p.m. in New York after settling at $47.66. Total volume on the New York Mercantile Exchange was about 11 percent above the 100-day average.

Brent for July settlement fell $1.06, or 2.4 percent, to $50.46 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $2.47 premium to July WTI.

The EIA is forecast to show that crude stockpiles dropped by 3 million barrels last week, according to the Bloomberg survey. U.S. gasoline supplies probably rose by 1 million barrels and inventories of distillate fuel, a category that includes diesel and heating oil, by 2 million.

Deal Extension

OPEC output fell by 40,000 barrels a day to 31.895 million barrels in April, according to a Bloomberg News survey of analysts, oil companies and ship-tracking data. Iraq, the second-biggest producer in the group, and Venezuela came closer to their targets. 

Among the 10 members bound by the caps, compliance strengthened to 102 percent from 89 percent in March, the survey showed. Total output -- including Libya and Nigeria -- remains 135,000 barrels a day above target, putting the group about 90 percent of the way toward its goal.

All countries participating in the cuts must agree to any extension, United Arab Emirates Energy Minister Suhail Al Mazrouei said Tuesday in the U.A.E. capital Abu Dhabi. Russia believes that extending last year’s oil-output deal with OPEC makes sense for at least six more months given current market situation, a Russian government official with knowledge of the matter said, asking not to be named as the decision isn’t public yet.

Oil-market news:

• Saudi Arabia will retain full ownership of its oil and gas reserves and sole decision-making authority on production levels after Saudi Arabian Oil Co.’s long-awaited initial public offering, Deputy Crown Prince Mohammed bin Salman said in interview Tuesday on state-run television.
• BP Plc’s net debt rose again in the first quarter, reaching the highest level in at least a decade as payments linked to the Gulf of Mexico oil spill offset a threefold increase in net income.

Senators propose 100 percent renewable energy in US by 2050

Oregon Sen. Jeff Merkley and Sen. Bernie Sanders, I-Vermont, along with Sens. Edward J. Markey, D-Massachusetts and Cory Booker, D-New Jersey, introduced landmark climate legislation that would transition the U.S. to 100 percent clean and renewable energy by 2050.

 The “100 by ’50 Act” lays out a roadmap for a transition to 100 percent clean and renewable energy by 2050. It is the first bill introduced in Congress that will fully envision a transition off of fossil fuels for the United States.

:America is home to innovative entrepreneurs and scientists who have tackled many challenges in our nation’s history—from harnessing electricity, to putting a man on the moon, to curing disease,” said Merkley. “The power to end the use of fossil fuels and completely transition to clean and renewable energy is within our hands, but just as with the moon landing, we need a roadmap, a goal, and a passionate, shared national commitment to get us there. If an asteroid were hurtling its way through space towards our planet, we would do everything in our power to stop that asteroid. Our commitment to fighting climate change should be no less. Starting at a local, grassroots level and working toward the bold and comprehensive national vision laid out in this legislation, now is the time to commit to 100 percent by 2050.”

“The good news is that despite President Trump we are winning this battle,” said Sanders. “In Vermont and all over this country, we are seeing communities moving toward energy efficiency and we are seeing the price of renewable energy plummet. Our job is to think big, not small. We can win the war against climate change. We can win the war in transforming our energy system and put millions of people to work doing that. We can create a planet that will be healthy and habitable for our children. There is no issue more important.”

“It is no longer a question of if we can power our country with 100 percent renewable energy, it is a question of when,” said Markey. “We know that we have 100 percent of the clean energy resource potential in the United States. And we have 100 percent of the technological capability to achieve this goal. As President Trump launches attacks on investments in climate science and energy innovation, now, more than ever, we need to stand up and fight for our clean energy future. I thank Senators Merkley and Sanders for their help leading this historic clean energy revolution.”

“We are in a race against climate change and need to reduce our carbon emissions as quickly as possible,” said Booker. “This legislation creates a framework for a transition to a 100 percent clean and renewable energy future, while also providing resources to ensure that all of our communities share in the opportunities that will be created.”

On April 27, Merkley, Sanders, and Markey were joined at an event to announce the legislation by environmental, social justice, business, and labor leaders. The speakers discussed ways that local and regional governments and organizations can begin to plan the transition to 100% now, and the critical importance of bold climate action before it is too late.

The 100 by ’50 Act has seven core components driving the complete transition to 100 by ’50:

1. Greening the Grid—Phase-out fossil fuel electricity by 2050 and replace it with clean and renewable energy, through a mandatory fossil fuel phase-out and major investments in clean and renewable energy, storage and grid infrastructure to ensure reliability and affordability.

2. Electrifying the Energy Economy—Electrify as much of our transportation and heating systems with power from the clean electrical grid, through a national zero emissions vehicle standard, major investments in zero emission vehicles and zero emission heating systems, as well as carbon taxing authority for commercial aviation, maritime, and rail. 

3. Clean and Renewable Energy for All—Ensure that low-income and disadvantaged communities share in the benefits of a transition to 100 by ’50, through grants to make clean energy, energy efficiency and public transportation affordable and accessible, and to provide job training in the clean energy sector.

4. Just Transition for Workers—Provide a just transition for the people who work in today’s fossil fuel economy to find good jobs in growth industries of the future, and get fair benefits between jobs or in retirement.

5. Ending New Fossil Fuel Investments—Stop approving major fossil fuel projects like the Keystone XL pipeline and Dakota Access Pipeline, and end fossil fuel subsidies.

6.  Ensuring American Competitiveness—Make sure that energy-intensive U.S. products maintain a level playing field with products imported from other countries by imposing a carbon tariff for imported carbon-intensive products.

7.  Mobilizing American Resources—Create a major new source of funding to ensure a rapid and smooth transition to 100 by ’50 by auctioning Climate Bonds and investing the funds in the new programs created by the 100 by ’50 Act. The Climate Bonds will ensure climate resiliency throughout our existing infrastructure and communities, and provide planning grants to organizations, communities, tribes and states to develop their own 100% plans and jump-start the transition.

Biggest U.S. Companies Setting More Renewable-Energy Targets

Almost half of the biggest U.S. companies have established clean-energy targets for themselves, according to a report Tuesday from sustainable investors and environmental groups including the World Wildlife Fund.

It’s not just the biggest U.S. companies -- 44 percent of the smallest 100 members of the Fortune 500 have also set goals, up from 25 percent in 2014, and 48 percent of the entire list.

Many are finding that renewable energy isn’t just cleaner, it’s also often cheaper. About 190 Fortune 500 companies collectively reported about $3.7 billion in annual savings, according to Power Forward 3.0, a report by WWF, Ceres, Calvert Research & Management and CDP.

“We’re not talking about anecdotal information anymore,” Marty Spitzer, a WWF senior director of climate and renewable energy in Washington, said in an interview. “We’re talking about large, large savings.”

Potential savings and sustainability goals prompted corporations to buy almost 3.7 gigawatts of power generated by clean-energy projects in 2015, and another 2.5 gigawatts last year, almost all from wind and solar, according to Bloomberg New Energy Finance.

Technology companies are among the biggest buyers of clean energy. Alphabet Inc.’s Google expects to be powered entirely by clean energy this year. In January, Apple Inc. agreed to buy the output from a proposed 200-megawatt solar farm in Nevada to help power a data center in Reno, Nevada. And Salesforce.com Inc., the San Francisco-based business software company, this month said it has reached net-zero greenhouse-gas emissions.

But it’s no longer just tech companies. About 63 percent of Fortune 100 companies have clean-energy targets, according to the report. Such targets include commitments to reduce greenhouse-gas emissions and increase energy efficiency and renewable energy.

The 190 Fortune 500 companies reported emission reductions equivalent to mothballing 45 coal-fired power plants for a year, according to the report. It also found that 23 of Fortune 500 companies have 100 percent renewable-energy targets.

Oil prices stable after big draw in US crude inventories

Oil prices rebounded from early losses on Wednesday after US government data showed a larger-than-expected falloff in crude inventories, which encouraged buying after several days of selling on worries that a global crude glut was persisting despite output cuts by producing countries.

US crude prices stayed higher, while Brent edged back into negative territory but off session lows. US West Texas Intermediate (WTI) settled up six cents at US$49.62 per barrel, while Brent crude, the international benchmark, ended down 21 cents at US$51.82 a barrel.

The US Energy Department said crude stocks dropped 3.6 million barrels last week, more than double what was expected. The government data was a surprise the day after industry group the American Petroleum Institute said its data showed a build.

Buying lifted US crude futures just slightly after declines in six of the last seven days. Analysts noted that the EIA report also showed gasoline and distillate stockpiles grew, while US production and imports increased.

"We're running a slight deficit and starting to eat into inventories but not by any meaningful amount," said Tanya Andrien, vice-president in strategic development at Drillinginfo.

Refining capacity utilisation rose to 94.1 per cent, highest since November 2015. That boosted gasoline inventories to 241 million barrels, about where they were a year ago, which sapped refining margins all throughout last year. Overall, refiners processed 17.3 million barrels of crude a day in the most recent week. That's a record, according to EIA.

Reformulated blendstock gasoline prices dropped 2.4 per cent to US$1.5840 a gallon after gasoline inventories rose sharply.

Analysts warned that weak US gasoline demand could weigh on crude prices in coming weeks unless demand spikes with summer driving season.

Brent and WTI prices got a boost in early trade when Saudi energy minister Khalid al-Falih said he was interested in talks between the Organization of the Petroleum Exporting Countries and non-Opec producers to stabilise prices.

Opec and other producing countries including Russia pledged to cut output by 1.8 million barrels per day (bpd) in the first half of 2017. Opec meets in May to discuss extending cuts.

The average value of the Brent crude forward curve has fallen by over US$5 per barrel since the start of the year, suggesting doubts in the market about whether the glut will be reduced.

"We see week-to-week changes in EIA stocks reports but the bottom line is we have more crude than we did last year, and are well ahead of what we had for the five-year averages - we're not running out of crude oil anytime soon," said Darin Newsom, DTN senior analyst in Omaha, Nebraska.

Losses for banks, health care and energy firms sink stocks

U.S. stocks are lower Friday after a big gain the day before. Banks are down with bond yields and interest rates. Health care companies are also slumping and energy companies are falling as oil prices decrease and oilfield services firm Schlumberger announced lower revenue than investors had forecast. Toy maker Mattel is nosediving after it reported a big drop in sales.

KEEPING SCORE: The Standard & Poor's 500 index lost 9 points, or 0.4 percent, to 2,346 as of 1:35 p.m. Eastern time. The Dow Jones industrial average dipped 42 points, or 0.2 percent, to 20,536. The Nasdaq composite fell 14 points, or 0.2 percent, to 5,902. The Russell 2000 index of smaller-company stocks fell 6 points, or 0.5 percent, to 1,377.

WEEKLY WRAPUP: Stocks are on pace for a solid gain this week, but they've wandered up and down over the last few weeks. That may continue for a while. Next Friday the government will release its report on first-quarter GDP growth, a critical look at the economy that investors pay a lot of attention to. On the same day, the federal government is scheduled to reach its borrowing limit, which could trigger a government shutdown unless Congress agrees to extend it.

ENERGY: Meanwhile benchmark U.S. crude shed $1.31, or 2.6 percent, to $49.40 a barrel in New York. Brent crude, used to price international oils, fell $1.23, or 2.3 percent, to $51.76 a barrel in London.

Schlumberger, the world's biggest oilfield services company, fell after it reported less revenue than analysts had forecast. The company said revenue in China, Russia and the North Sea fell more than it had expected. The stock gave up $2.04, or 2.7 percent, to $74.47 and competitors Halliburton and Baker Hughes both fell, too. Elsewhere, pipeline company Kinder Morgan shed 33 cents, or 1.6 percent, to $20.39 as energy companies took broad losses.

BARBIE BUMMER: Mattel, the largest toy company in the U.S., said its sales dropped 15 percent in the fiscal first quarter as it dealt with holiday hangover of too many items unsold. The company's revenue totaled $735.6 million, which was $67 million less than expected, according to FactSet. The stock lost $2.94, or 11.7 percent, to $22.27.

Mattel also reported disappointing fourth-quarter results in January and its stock is down almost 20 percent this year.

HUMMING ALONG: Industrial conglomerate Honeywell's profit and sales were better than expected, and the company raised its profit projection for the year. The stock jumped $2.63, or 2.1 percent, to $126.40. Aviation electronics company Rockwell Collins raised its profit and sales forecasts after its $8.6 billion purchase of former competitor B/E Aerospace. The new estimates are greater than what analysts had forecast and its stock rose $4.60, or 4.6 percent, to $104.19.

While General Electric met Wall Street expectations for the quarter, its stock lost 70 cents, or 2.3 percent, to $29.57. Citi Investment Research analyst Andrew Kaplowitz said the company had a "generally solid quarter" but didn't bring in as much cash as investors thought it would.

CATCHING A CHILL: Almost all of the health care companies in the S&P 500 index were lower. Biotech drugmaker Alexion Pharmaceuticals lost $2.57, or 2.2 percent, to $116.15 and Merck declined 52 cents to $62.03. Pharmacy benefits manager Express Scripts dipped 91 cents, or 1.4 percent, to $66.14.

BONDS: Bond prices rose. The yield on the 10-year Treasury note slid to 2.21 percent from 2.24 percent. Bank of America fell 46 cents, or 2 percent, to $22.61 and Synchrony Financial lost 54 cents, or 1.6 percent, to $33.31, as lower bond yields mean banks can't charge as much for loans.

VISA PAYS UP: Payment processing giant Visa said its profit dropped 75 percent in the fiscal second quarter, largely due to the costs of integrating its recently acquired Visa Europe into the larger company. Its results were stronger than expected, but Wall Street wasn't that impressed. The stock edged up 36 cents to $91.51.

ALOHA: Hawaiian Holdings, the corporate parent of Hawaiian Airlines, posted solid results in the first quarter and said it expects strong growth in an important revenue measurement over the next few months. The stock jumped $2, or 3.9 percent, to $53.90.

CURRENCY: The dollar dipped to 108.93 yen from 109.31 yen. The euro fell to $1.0698 from $1.0722.

OVERSEAS: France's CAC-40 retreated 0.4 percent after a big gain Thursday. Germany's DAX gained 0.2 percent and the British FTSE 100 lost 0.1 percent. The Nikkei 225 in Tokyo gained just over 1 percent and the Kospi in South Korea added 0.7 percent. Hong Kong's Hang Seng shed 0.1 percent.

Oil falls more than 3%; energy drags down stocks

Oil prices dropped more than 3 per cent on Wednesday following a surprise increase in gasoline inventories, and declines in energy shares weighed on US stocks.

The dollar recovered from recent weakness against the euro and the safe-haven yen, while sterling was off six-month highs hit after Britain's prime minister on Tuesday called for a snap election.

Investors also braced for the coming French election. Four days before the first round of the presidential election in France, just a few points separate the top four candidates, including two who oppose the euro - the far-right's Marine Le Pen and the far-left's Jean-Luc Melenchon, according to opinion polls.

In the oil market, the counter-seasonal build of 1.5 million barrels in gasoline in the latest week, along with an increase in US production, pressured prices.

US crude futures fell 3.8 per cent to settle at US$50.44, while Brent crude futures dropped 3.6 per cent to US$52.93.

The oil losses hurt shares of US energy companies, pushing the S&P 500 energy index down 1.4 per cent and causing the benchmark S&P 500 index to reverse earlier gains.

"Crude broke US$52 on WTI, that is the strongest correlation we have right now away from the case-by-case earnings we have," said Art Hogan, chief market strategist at Wunderlich Securities in New York.

US first-quarter earnings so far have been mostly stronger than expected. On Wednesday, shares of Morgan Stanley rose 2 per cent following the bank's results, though International Business Machines dropped 4.9 per cent and pressured the Dow.

The Dow Jones Industrial Average was down 118.79 points, or 0.58 per cent, to 20,404.49, the S&P 500 lost 4.02 points, or 0.17 per cent, to 2,338.17 and the Nasdaq Composite added 13.56 points, or 0.23 per cent, to 5,863.03.

The pan-European STOXX 600 index, which hit a three-week low on Tuesday, ended up 0.2 per cent.

In the US Treasury market, bond yields rose after a rally on Tuesday sent yields to five-month lows prompted by concerns about the French election and rising geopolitical tensions.

Benchmark 10-year notes dropped 8/32 in price to yield 2.21 per cent. The 10-year yield fell as low as 2.165 per cent on Tuesday; it has tumbled from a high of 2.63 per cent reached on March 14.

Questions still hung over the "reflation" trades that had lifted markets since Donald Trump became US president.

A run of disappointing US economic data and doubts the Trump administration will progress with tax cuts have quelled expectations of faster inflation.

STERLING EASES

Sterling was down 0.19 per cent at US$1.2811. It hit a six-month peak against the dollar on Tuesday following British Prime Minister Theresa May's call for an early general election on June 8, seeking to strengthen her party's majority ahead of Brexit negotiations.

Britain's FTSE 100 index fell 0.5 per cent. British stocks are vulnerable to a rising pound because more than two-thirds of FTSE 100 company earnings are derived from operations overseas.

The greenback was 0.54 per cent higher against the yen and up 0.17 per cent against the euro.

Gold dropped 1 per cent as the dollar gained, with spot gold falling as low as US$1,275.73 per ounce.

Fear Is Creeping Back Into Markets

The calm in stocks worldwide is giving way to concern, with investors in Europe and the U.S. rushing to hedge against declines and a Credit Suisse Group AG index flashing a warning as the list of economic and political obstacles grows.

The Credit Suisse Fear Barometer, which measures the cost of buying protection against declines in the S&P 500 Index, neared an all-time high this week. The higher the reading, the more expensive it is to buy protection relative to upside calls, according to Mandy Xu, an equity derivatives strategist at Credit Suisse.

“While put demand has certainly increased over the past week, the biggest mover actually comes from the call-side,” Xu said in a report dated Wednesday. “Falling call skew indicates investors see less potential for market upside going forward, perhaps in recognition of the increased macro and political headwinds.”

Credit Suisse’s gauge jumped 46 percent this month through Tuesday, when it reached 45.74. That’s about a third of an index point away from its June 2016 peak ahead of the Brexit vote. The broader CBOE Volatility Index, known as the VIX, is up almost 30 percent this month.

There’s no shortage of potential concerns. Tensions over North Korea’s nuclear program have intensified days after the U.S. fired missiles at a Syrian airfield. There’s uncertainty over the outcome of the French election, with the first round scheduled for April 23, and in Britain doubts are emerging on whether the economy can withstand the political shocks the Brexit negotiations will bring.

Other signs of investor nervousness include:

The rally in global equities has stalled in recent weeks amid growing skepticism about Donald Trump’s ability to carry out promised infrastructure spending and tax reforms after he failed to push through a repeal and replace large parts of the Affordable Care Act. The S&P 500 has lost 2.1 percent since reaching a record on March 1, slipping below its 50-day moving average for the first time since the November U.S. election.

What’s more, the cost of hedging against a 5 percent decline in the S&P 500 Index over the next month has increased at the fastest rate since June’s Brexit referendum, relative to options betting on a gain of that magnitude.

The benchmark 10-year U.S. Treasury is starting to behave as it did in the run-up to the Brexit vote, as yields fall while volatility climbs in one-month options, according to the Merrill Lynch Move Index.

It’s the same story in other major markets. Japanese yields are back near zero after a brief rally through the first quarter of the year, while the gap between German bunds and peers is close to a multi-year low.

Safe-haven trade stand-bys such as gold and the yen are back in vogue. The yellow metal is closing in on $1,300-an-ounce mark for the first time since before Trump’s victory. A four-day winning streak helped it rise above the 200-day moving average this week. The yen also strengthened below 110 per U.S. dollar for the first time since November. The dollar extended a slump after Trump told the Wall Street Journal it was “getting too strong” and backed down from labeling China a currency manipulator.

Anxiety has jumped in Europe, too. Investors have raised bets that stocks will move in lockstep to levels not seen since the Brexit vote, up from a record low in February, according to data going back to 2011. That’s something that often happens in times of crisis, and is an expression of concern that forthcoming political events will dominate market movements and overshadow company-specific forces.

And the cost of hedging against declines in the Euro Stoxx 50 benchmark has risen to levels not seen since the U.K. referendum on European Union membership. Investors may be seeking to protect gains as the French election looms.

Dollar, Treasury yields, stocks fall on Trump currency comments

The U.S. dollar turned lower along with Treasury yields and stocks on Wednesday after U.S. President Donald Trump said the dollar is getting too strong and that he would prefer the Federal Reserve keep interest rates low.

Trump, in an interview with the Wall Street Journal, also said he would not label China a currency manipulator.

"The market had a big reaction, but I think it was an overreaction because (Trump) may just be hedging his bets by making sure that the American public realizes he’s not backing down on trade. It’s just that he may not think now is the right time to brand China a currency manipulator," said Kathy Lien, managing director, at BK Asset Management in New York.

"The dollar’s already under pressure, so I think any excuse for further pressure is likely to bring the greenback even lower.”

The U.S. dollar index .DXY, which measures the greenback against a basket of six other major currencies, was down 0.5 percent at its lowest since late March.

The dollar was down 0.4 percent against the yen JPY=, which is a favorite in uncertain times due to Japan's position as the world's largest creditor nation. The dollar fell 1.2 percent against the yen on Tuesday.

U.S. Treasury yields fell, with benchmark yields hitting a near five-month low due to Trump's comments favoring low interest rates. Benchmark 10-year Treasury yields US10YT=RR were 3 basis points lower at 2.268 percent after hitting 2.259 percent, which was the lowest since Nov. 17.

The Dow Jones Industrial Average .DJI fell 59.44 points, or 0.29 percent, to end at 20,591.86, the S&P 500 .SPX lost 8.85 points, or 0.38 percent, to 2,344.93 and the Nasdaq Composite .IXIC dropped 30.61 points, or 0.52 percent, to 5,836.16.

On Wall Street, defensive sectors were the biggest gainers in keeping with preferences for safety.

While a weaker dollar would help profits at multinational companies, stocks turned lower after Trump's comments, as he added "another wild card," according to Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

“We all know markets like fairly stable situations," said Tuz. "Is this just another offhand comment from Donald Trump or does it really mean something and is it the start of a policy that you’ll see introduced soon?”

Gold XAU= was up 0.9 percent at $1,286.10 an ounce, after jumping 1.6 percent on Tuesday.

Trading Wednesday was also heavily influenced by rising U.S. tensions with Russia, North Korea and Syria after U.S. missile strikes in Syria last week and the moving of U.S. warships toward the Korean Peninsula.

Investor optimism had briefly improved during a joint press conference in Moscow held by U.S. Secretary of State Rex Tillerson and Russia's Foreign Minister but the signs of optimism ebbed afterwards as it became clear officials did not seem any closer to agreement on Syria.

Oil prices ended lower after reversing earlier gains due to a report on U.S. crude stockpiles. Oil futures turned negative after eight straight sessions of gains on the U.S. inventory data suggesting persistent oversupply.[O/R]

Global benchmark Brent crude LCOc1 settled down 0.7 percent at $55.86 a barrel, while U.S. crude CLc1 settled down 0.5 percent at $53.11.