Trump-Kim Summit Stalls Out 🙊 Warm Feb Hurts Energy Sector 🔥
1. Trump-Kim Summit Stalls
And South Korea’s market took the full force of the blast with the KOSPI index and its currency (Won) falling while bond yields went through the roof. Not quite the outcome anyone was expecting!
Talks between Trump and Kim ended early today when negotiations broke down over the issue of sanctions. North Korea demanded the full removal of sanctions for only partial denuclearisation…A deal that did not fly with the US delegation.
Trump agreed to keep the status quo intact with sanctions remaining in place, while the US refrained from taking part in joint military operations with South Korea. Trump was all too happy to agree to this, stipulating that South Korea “should shoulder more of the ($100m) costs” if they wanted to continue playing war games.
The collapse in talks saw rising geopolitical risk filter through into the Korean and wider Asian markets. Korean chipmakers were among the worst affected, with Samsung and SK Hynix pulling down the benchmark index.
The KOSPI dropped almost 1.8%, while the Won dropped 0.6% as foreign capital flowed out of the country. More bad news and military escalation from North Korea could see more losses on the 9.2% the index has recouped since the start of 2019. Here we go again!
2. Warm Feb Hurts Energy Sector
While most Brits have been out getting a tan in the 17-21° weather, energy providers have been getting battered by plummeting energy demand and prices. Ironic, considering last year was the polar opposite.
Unseasonably warm temperatures across the European continent and the UK has put a serious spanner in the works for the energy sector. Natural gas and coal prices have fallen through the floor, making it almost unprofitable to burn in some places.
While analysts forecast that temperatures are likely to return to normality by next week, the damage has already been done to much of the market. Last year’s cold snap made suppliers wary of a similar effect happening this year, giving rise to concerns of shortages and extensive stockpiling to cater to excess demand.
Now they’re facing a glut with Europe’s next month power price slumping 40% since the start of 2019 and very few contingency measures in place to cushion the blow. Big suppliers are often extremely reluctant to be the first to cut supply, fuelling a significant price crash across the entire industry when none cave to evening out the supply imbalance.
Shares of larger power and utilities providers, such as Centrica, E.On, EDF, Drax, Enel, National Grid have been sliding for the past few days which may worsen with a lagging effect towards the end of March. Lower energy prices and a tan in Feb….finally something for Europeans to smile about!
Today we are watching…
1. PG&E (#pacgas)
The much anticipated PG&E earnings call is here at last and analysts are prepped for a volatile day. Even though the company had increased demand for energy during the winter months, the massive California fire incident will be an overriding factor dragging its performance through the mud. The company filed for bankruptcy in January and this earnings report will show us the full extent of the damage, but it’s looking far from good! Don’t miss this one.
2. Dell Technologies (#dell)
Dell is in a good spot ahead of its earnings today with analysts sounding upbeat about the company’s prospects going forward. Despite a slightly sluggish PC market and stiff competition from the likes of HP, Microsoft, and Google, Dell looks poised to benefit from its well-diversified portfolio of companies and dominant position in the enterprise software solutions market. Strong infrastructure demand is expected to be the key growth engine for the company, boosted by ongoing momentum at VMware, Pivotal Software and SecureWorks. Keep an eye on this one.