The Wall Street Journal - 12.03.2020

THE WALL STREET JOURNAL. **** Thursday, March 12, 2020 |B11

AUCTION RESULTS
Here are the results of Wednesday's Treasury
auction. All bids are awarded at a single price atthe
market-clearing yield. Rates are determined bythe
difference between that price and the face value.
NINE-YEAR, 11-MONTH NOTES
Applications $56,736,113,900
Accepted bids $24,023,077,900
" noncompetitively $3,722,000
" foreign noncompetitively $0
Auction price (rate) 106.179092
(0.849%)
Interest rate 1.500%
Bids at clearing yield accepted 74.94%
Cusip number 912828Z94
The notes, dated March 16, 2020, mature on Feb. 15,
2030.

managers to execute trades at
the end of the session.
As index funds have fueled a
frenzy of trading at the close,
other big investors have shifted
much of their trading to the
end of the day, taking advan-
tage of the growing presence of
big market participants.
“It’s actually the best time to
catch the big next move on the
upside,” Paul Ollivier, a retail
trader based in Naperville, Ill.,
said of the last hour of trading.
He said he decided to jump
into the market at about 3:30
p.m. on Feb. 28, near the end of
the worst week on Wall Street
since the financial crisis.
The Nasdaq Composite was
just starting to rebound from a
2% intraday decline, so Mr. Ol-
livier said he bought bullish call
options betting that the tech-
heavy Invesco QQQ Trust,
which closely tracks the index’s
performance, would advance.
These contracts give the right
to buy shares at a specific
price, later in time, and would
profit from the exchange-
traded fund’s rise.
The index ended up bounc-
ing 2.1% in the last 30 minutes,
narrowly clinching a gain for
the day. Earlier in the session,
it had fallen by as much as
3.5%, making Friday the first
time since November 2008 that
the index had fallen at least
that much and still closed in
positive territory, according to
Dow Jones Market Data. The
Dow industrials, surged about
640 points in the last 20 min-
utes of the session, paring
much of the day’s decline.
Patrick Nichols, a partner at
trading firm Old Mission Hold-
ings, said he often trades at the
end of the session, when ex-
change-traded funds, pension
funds and other investors are
also active.
There has been more activ-
ity there “than at any other
time on planet Earth,” said Mr.
Nichols. “Volatility has been ex-
acerbated into the close.”
The past few weeks have
been particularly busy, he said.
Traders can enter orders to
buy and sell in the closing auc-
tion throughout the trading
day, but such activity tends to
heat up toward the end of the
day. In the closing minutes of
trading, stock exchanges indi-
cate whether there are more
buy or sell orders for stocks
and exchange-traded funds
ahead of the end of the trading
session.
Some traders use these “im-
balance” messages as cues to
start placing bets ahead of the
closing bell in anticipation of
what they think the final prices
will be. For example, if there ap-
pears to be heavy demand for a
stock at the end of the day, a
trader might opt to buy minutes
before the bell, expecting gains.
“People can bring those into
their models and be predictive
about where they think the
market is going to close,” said
Rob Bernstone, a managing di-
rector at Credit Suisse Group
AG, before the recent selloff. “It
gives people time to respond to
it. That’s why you might see
the last five to 10 minutes have
some volatility.”
At 3:50 p.m. on Feb. 28, for
example, Nasdaq indicated that
buying interest in shares of
Amazon.com Inc. in the closing
auction outweighed sales by
about $143 million, a bullish
signal for the stock. Amazon’s
share price gained $41.35 in the
next 10 minutes to close at
$1,883.75, a gain of more than
2% from where it was trading
at 3:50 p.m.
Old Mission’s Mr. Nichols
said some trading algorithms—
basically investment recipes
that automatically buy and sell
based on preset inputs—are
helping fuel the activity. Some
tactics use volumes as indica-
tors to trade, transacting at the
most popular times as a result.
“All that algorithmic trading
is creating a feedback loop,”
Mr. Nichols said.
—Alexander Osipovich
contributed to this article.

Continued from page B1

Stocks

Active at

Day’s End

familiar with the matter. T. Rowe criticized Occiden- tal last year over the Anadarko deal and voted against Ms. Hollub and the company’s other board members at last year’s annual meeting, as did more shareholders than is typ- ical for those types of votes. Other large institutional investors, including BlackRock, State StreetCorp. andDodge &Cox, voted for the company’s board last year. Many shale producers including Occidental were struggling to turn a profit even before the coronavirus and tension among big oil-produc- ing states sent crude prices down sharply. Occidental is particularly vulnerable given its high debt level—roughly $40 billion at last count. Occidental said this week it would slash spending and cut its quarterly dividend to 11 cents a share from 79 cents. Ms. Hollub at the time said the

Continued from page B1

Saudi Arabia on Wednesday unveiled plans to boost its oil- production capacity to help fight a price war with Russia, as other producers launched attempts to mediate a truce.

The capacity increase comes after the kingdom instigated an oil-price war with Russia by signaling its intentions to boost production and slash prices. Russian Energy Minis- ter Alexander Novak responded Tuesday, saying his country could rapidly open its own taps and add 500,000 barrels a day to its current production. The acrimony between two of the world’s top oil producers follows the collapse of a meeting of the Organization of the Petroleum Exporting Countries and its allies in Vienna last week. Russia rejected a Saudi- backed plan to cut crude output in response to dwindling demand in China. The Brent oil price, the global benchmark, fell 3.8% to $35.79 a barrel on Wednesday, while West Texas Intermediate was down 4%, to $32.98 a barrel. State oil giant Saudi Aramco’s share price was down 4.7% to 29.70 Saudi riyals on Wednesday and has fallen 10% since Thursday afternoon, when it became clear Saudi attempts to convince Russia

wouldn’t produce an agree- ment on proposed cuts. Saudi Aramco said Wednes- day it had received a directive from the energy ministry to raise its output capacity to 13 million barrels a day, from 12 million barrels a day. A sustained fight for global market share will test Saudi Aramco’s ability to ramp up its output potential after its operations sustained a massive drone and missile attack in September, said Adel Hamaizia, an associ- ate Middle East fellow at Lon- don’s Royal Institute of Inter- national Affairs. “If they pass the test, it

shows they maintain significant leverage on the oil market,” he said. On Wednesday, Moscow sought to play down the rift. Russia and Saudi Arabia will continue to develop their investment partnership and attempts to break up their partnership won’t work, Kirill Dmitriev, head of the Russian Direct Investment Fund, was quoted as saying by the Inter- fax News agency. Both sides believe they can withstand a prolonged price war. It typically costs up to $30 billion for Aramco to add one million barrels a day of

production capacity, its then- Energy Minister Khalid al-Falih told Russia’s Tass agency in

And Saudi Arabia relies
heavily on oil revenue to fund
state spending. But it can off-
set lower prices with massive
production facilities that can
process oil at among the low-
est costs in the industry.
Russia, which has a more di-
versified economy than Saudi
Arabia, relies on much less oil
revenue, analysts say.
That isn’t the case for many
of Saudi Arabia’s fellow OPEC
members, some of whom are
trying to intervene and bring
back both sides to the negoti-

ating table. Algeria, Iraq and the United Arab Emirates, among others, have been hold- ing talks with other oil nations to broker a marketplace peace, according to officials in these countries. To balance their state budgets, these countries respectively need oil prices at $92, $59 and $68 a barrel, according to the International Monetary Fund. Algeria is calling for a tech- nical meeting to try to find a new understanding between the Saudis and Russians, who had collaborated for four years in an OPEC+ alliance to balance global crude supplies.

Saudis Spell Out Boost in Crude Production

Saudi Aramco will raise output by 1 million barrels a day to 13 million barrels in the kingdom’s price war with Russia.

FAYEZ NURELDINE/AGENCE FRANCE-PRESSE/GETTY IMAGES

ByBenoit Faucon, Summer Said andDavid Hodari

MARKETS

couraged to take similar ac- tion, according to news reports. Such moves could fur- ther stretch funding and balance-sheet concerns at banks. “When markets come under duress as they have over the past couple of weeks, asset prices are pushed to levels where you begin to see margin calls and other internal activity that is not always visible on the surface,” said Daniel Dem- ing, a managing director at Chicago-based KKM Financial. People familiar with some of the largest securities-deal- ing banks said many firms bought corporate bonds as prices fell last week, but those purchases resulted in some banks having balance sheets that executives deemed too

large. With prices barely having recovered in many markets, some banks chose to sell Treasurys instead, in part re- flecting their significant appre- ciation in recent weeks. Another area of worry: the rising price difference between a Treasury bond and the equiv- alent future, also known as the “cash-future basis.” Traders said the dislocation was the worst since 2008 and re- minded some of an even more acute episode in 2001 follow- ing the 9/11 attacks. Analysts and portfolio managers scruti- nize the basis because signs of stress there can foretell lending pullbacks. Trading conditions in the Treasury market “are certainly deteriorating, but it’s not mis-

erable,” said Jim Vogel, an interest-rate strategist at FHN Financial. “The system is just overloaded” as investors digest rapid changes in sentiment, news about possible stimulus from Washington and financ- ing challenges. Similarly, the spread between the two-year Treasury yield and the overnight in- dexed swap, a derivative used by banks to hedge exposures created in lending and invest- ing, has risen this week, including an increase of 0.05 per- centage point on Wednesday. “Swap spreads are showing early signs of dealer balance- sheet funding pressures,” said Priya Misra, head of global rates strategy at TD Securities. The share-price declines

and funding-market stresses don’t necessarily indicate that Wall Street is questioning the viability of the banking system, as it did in the 2008 crisis. Fol- lowing that episode, banks sig- nificantly boosted their capital cushions and access to cash under regulatory scrutiny and financial legislation. But changes in regulation and shifts in the economy have reduced the market’s capacity to absorb volatility, many traders say, and the declines in bank-related markets in part reflect concerns about how a test of the new regime might play out for some lenders. The cost to insure bank bonds against default rose sharply, suggesting investors are worried about a funding pinch. The cost of insuring against default on Citigroup debt for five years rose to $115,000 annually from $40,000 this week, according to FactSet, though it remains well below the panicked pric- ing seen in 2008. Adding to those concerns were additional ructions in the market for repos, the repurchase agreements that serve as a short-term funding mecha- nism for many financial firms. The Federal Reserve Bank of New York said Wednesday it would ratchet up the amount of cash it injects into money markets beginning Thursday through collateralized loans known as repurchase agreements, or repos. It increased the amount of overnight repo offerings to $175 billion from $150 billion.

The deepening Wall Street rout is adding to pressure on U.S. banks, as the retreat of investors from risky assets sad- dles lenders with securities they are struggling to sell at desired prices. The crunch has been evi- dent in the share prices of the largest U.S. financial firms, which have fallen 30% or more in many cases over the past month.CitigroupInc. dropped 8.6% on Wednesday, bringing its decline to 36%, nearly dou- bling the drop in the S&P 500. Now the pain is spreading, as fears about the coronavirus’s impact on economic activity intensify and as an oil- price war brews between Saudi Arabia and Russia. Traders, analysts and regulators are moni- toring markets for signs that problems there are spilling over to hurt the real economy, by constraining lending. Executives in meetings with President Trump said Wednes- day the industry remains in ruddy good health. Brian Moy- nihan, chief executive ofBank of AmericaCorp., said banks are in “great position” on capital and liquidity. Michael Cor- bat, chief executive of Citi- group, said “this is not a financial crisis.” But amplifying the uncer- tainty Wednesday was news from across industries. Boeing Co. drew down a $13.8 billion loan with many banks, and companies owned by some pri- vate-equity firms are being en-

BYJULIA-AMBRAVERLAINE ANDNICKTIMIRAOS

Pressure on U.S. Lenders Builds

The bank’s chief executive told President Trump that the current situation isn’t a financial crisis.

LISA MAREE WILLIAMS/BLOOMBERG NEWS

changes would allow the company to break even with U.S. benchmark oil prices in the low $30s a barrel—about where they are now. While Mr. Icahn has been pushing the company to con- sider putting itself up for sale—and suggested the Ana- darko deal was a defensive move to avoid being ac- quired—he said he is now fo- cused on installing a board that will be able to hold man- agement accountable and, should oil prices recover, let shareholders decide if they wish to sell. Occidental has so far been a losing bet for Mr. Icahn, though he has in the past per- severed when investments soured and ended up in the black. He bought his first roughly 33 million shares for about $55.56 each, according to FactSet, and has lost an es- timated $1 billion so far. In No- vember, he said he sold about a third of his shares because the stock had become too risky. Occidental’s shares fell 18% Wednesday to $11.80. “I’m just glad I can afford to quadruple down,” Mr. Icahn said. —Corrie Driebusch and Christopher M. Matthews contributed to this article.

Icahn Lifts

Stake in

Occidental cane into either sugar or ethanol, a biofuel widely used to power cars in the Latin Amer- ican country. When energy prices decline, it incentivizes mills to produce more sugar and less ethanol, lifting global supplies of the sweetener. “The main reason why the price has come down over the past few days is the massive decrease in oil prices, which makes ethanol production less attractive,” said Michaela Hel- bing-Kuhl, an agricultural commodities analyst at Com- merzbank. “So people expect more sugar as opposed to ethanol to be produced, which is pushing down prices.” Oil prices fell again Wednesday after Saudi Arabia fired another salvo in its oil- price war with Russia, unveil- ing plans to lift production capacity to a record 13 million barrels a day. Brent-crude lost 3.8% to $35.79 a barrel. Meanwhile sugar demand could fall by 800,000 tons in China and 150,000 tons in It- aly this year as supply chains are disrupted and quarantine

measures stop people from eating out, according to Ste- phen Geldart, head of analysis at trading house Czarnikow. “Sugar consumption glob- ally will drop this year because of the virus,” Mr. Geldart said, adding that it is difficult to estimate exactly how much demand will fall in different countries. The world had been facing a shortfall of the sweetener before the recent change in circumstances. Global consumption was set to exceed production by 9.4 million metric tons in the 2019-20 season, which ends in Sep- tember, the International Sugar Organization said in late February. But with Brazilian producers gearing up to produce more sugar, that deficit could flip to a surplus in the 2020-21 season, according to Dr. Helbing-Kuhl. Hedge funds and other investors have unwound wagers that sugar prices would rise in recent weeks, analysts say, ex- acerbating the decline.

The slide in oil prices and the spread of the coronavirus are causing collateral damage in the sugar market. Raw-sugar futures, which trade in New York, tumbled 20% to 12.30 cents a pound through Wednesday since reaching their highest level in more than two years on Feb.

The drop has caught out
traders who had expected
prices to keep
rising due to
adverse
weather for farmers in India
and Thailand, two of the
world’s largest producers of
the sweetener.
Monday’s rout in oil
prices—the biggest since the
Persian Gulf War in 1991—
added to existing pressure on
sugar, which is sensitive to
swings in the energy market.
And the spreading coronavi-
rus is expected to weigh on
demand for soft drinks and
other sugary products.
Sugar mills in Brazil are
mostly able to convert sugar

BYJOEWALLACE

Sugar Prices Drop in Surprise

To Traders Expecting Shortfall

COMMODITIES

The Wall Street Journal - 12.03.2020

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