The current sell-off may end up emboldening the bulls, if the last tech bubble is a guide


The bubble isn’t burst yet.


Justin Edmonds/Getty Images

Traders at the moment seem to have as much patience with tech stocks as Kansas City Chiefs fans do for a moment of unity.

Thursday was the fourth ugly finish in five sessions, with the Nasdaq Composite
COMP,
-1.99%

skidding 2%, and the other major indexes backtracking as well.

Andrea Cicione, head of strategy at independent investment research firm TS Lombard, said excessive leverage in the market really began in earnest in July. Cicione added that was occurring in U.S. stocks wasn’t happening anywhere else in the world.

And while he’s seeing signs of a bubble, he thinks if the selling doesn’t intensify, the bubble may reflate soon.

“The leverage accumulation so far may not be enough to burst the bubble just yet,” he writes. “If the recent selloff does not intensify further, the whole episode may end up simply emboldening the bulls to buy the dip and take even more risk.”

Between 1997 and 1998, the Nasdaq experienced three sell-offs of at least 17%, only to emerge stronger and rise four-fold to the 2000 peak. “Leverage is a key characteristic of all bubbles, and almost invariably it is the mechanism that leads to their collapse. But there may not have been enough leverage for the dot-com 2.0 bubble to burst just yet,” he says.

The reason leverage is important in bursting bubbles is because it uniquely can lead to forced unwinding. “When faced with margin calls they cannot meet, investors may have to liquidate positions against their will. The resulting fall in prices can instil doubts in the mind of others, persuading them to sell,” he said.

The buzz

Consumer price data for August is due at 8:30 a.m. Eastern.

The quarterly services survey and August budget deficit are also due for release. The Congressional Budget Office, which typically gets the budget picture pretty close to the mark, estimated the August deficit was $198 billion, and said the September-ending fiscal year gap will be the highest relative to the economy since 1945.

Database software giant Oracle
ORCL,
+0.66%

topped earnings and revenue expectations, helped by revenue from key client Zoom Video Communications
ZM,
-1.32%
.
Oracle also declined to discuss whether it will buy the U.S. operations of social-media company TikTok, as U.S. President Donald Trump said Thursday there will be no extension of the Sept. 15 deadline for it to be sold to a U.S. company or shut.

Peloton Interactive
PTON,
-3.75%
,
the exercise bicycle company, reported stronger-than-forecast fiscal fourth-quarter earnings and revenue, with its current year outlook also well ahead of estimates.

Jean-Sébastien Jacques, the chief executive of mining giant Rio Tinto
RIO,
-1.67%
,
announced he will resign in March following the controversy over the firm blowing up ancient caves while excavating for iron ore.

Thursday marked the first day since spring when new coronavirus cases in the European Union and the U.K. exceeded the United States.

The market

U.S. stock futures
ES00,
+0.65%

NQ00,
+0.64%

were stronger.

Gold futures
GCZ20,
-0.46%

fell while oil futures
CL.1,
+0.21%

edged higher.

The British pound
GBPUSD,
+0.18%

continues to reel from its more combative stance taken against the European Union in trade negotiations.

The chart

This incredible UBS illustration of Tesla
TSLA,
+1.38%

shows how shares have performed compared to other tech giants since joining the $100 billion market cap club. It took Apple
AAPL,
-3.26%
,
Alphabet
GOOGL,
-1.36%

and Facebook
FB,
-2.05%

between 4 to 11 years to achieve what Tesla did in three quarters. UBS increased its Tesla price target to $325 from $160 ahead of the company’s battery day presentation.

Random reads

Here’s the 2010 memo from a venture capital firm on an investment which valued retail software maker Shopify at $25 million. Shopify
SHOP,
-1.59%

is now worth $114 billion.

China said its U.K. ambassador’s Twitter account was hacked — after a steamy post was liked.

An experimental treatment kept mice strong in space, one that could have uses back on Earth.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.



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Oil prices post a loss as EIA reports first weekly U.S. crude-stock climb in 7 weeks


Oil prices posted a loss on Thursday after U.S. government data revealed a weekly climb in U.S. crude inventories, on the heels of six consecutive weeks of declines, raising expectations of an oversupplied market as uncertainty continues to surround the outlook for demand.

The Energy Information Administration reported Thursday that U.S. crude inventories rose by 2 million barrels for the week ended Sept. 4—the first weekly rise in seven weeks. Total U.S. crude inventories, excluding those in the Strategic Petroleum Reserve stood at 500.4 million barrels, about 14% above the five-year average for this time of year.

That compared with an average forecast by analysts polled by S&P Global Platts for a fall of 500,000 barrels. The American Petroleum Institute on Wednesday reported a climb of 3 million barrels, according to sources. The supply reports were each delayed by a day due to Monday’s U.S. Labor Day holiday.

U.S. refiners took an even bigger hit than expected from Hurricane Laura, which made landfall in late August on the U.S. Gulf Coast, Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch. The EIA reported a big drop of 1.1 million barrels per day in crude refinery runs for last week, leading to the first domestic crude-stock build in weeks, he said.

On Thursday, West Texas Intermediate crude for October delivery
CL.1,
-2.52%

CLV20,
-2.52%

 on the New York Mercantile Exchange fell 75 cents, or 2%, to settle at $37.30 a barrel. November Brent crude
BRN.1,
-0.39%

 
BRNX20,
-0.39%
,
the global benchmark, lost 73 cents, or 1.8%, to reach $40.06 a barrel after a 2.5% gain in the previous session.

Read:Volatility in oil and gold may offer more opportunity than risk

Oil futures finished higher Wednesday, with U.S. prices reclaiming less than half of the more than 7% drop suffered in the previous session though worries over the demand outlook, driven by the pandemic, continued to limit crude’s upside potential.

Thursday’s EIA data also showed crude stocks at the Cushing, Okla., storage hub edged up by about 1.9 million barrels for the week, while total domestic oil production climbed by 300,000 barrels to 10 million barrels per day.

Gasoline supply, meanwhile, fell by 3 million barrels, while distillate stockpiles declined by 1.7 million barrels. The S&P Global Platts survey had shown expectations for a supply decline of 2.5 million barrels for gasoline, but distillates were expected to rise by 300,000 barrels.

On Nymex, October gasoline
RBV20,
-2.40%

 shed 1.9% to $1.0977 a gallon, while October heating oil
HOV20,
-2.48%

 settled at $1.0824 a gallon, down 2.1%.

The market is in the “midst of refinery maintenance season, which inherently causes a drop in refinery runs and ultimately finished products supplied,” a proxy for demand, said Tyler Richey, a co-editor at Sevens Report Research.

“If we don’t see those demand metrics recover to where they were prior to Hurricane Laura’s landfall, then it will be very difficult for oil to revisit the recent highs in the low-mid $40s, especially given the global supply side uncertainties regarding OPEC+’s next policy moves,” he told MarketWatch.

On Sept. 17, the Organization of the Petroleum Exporting Countries and its allies, which form a group known as OPEC+, will hold a market-monitoring meeting. The group in August trimmed supply cuts from earlier this year on hope of improved demand amid the pandemic.

OPEC+ oil production climbed by 1.71 million barrels a day to 34.63 million barrels a day in August from a month earlier, according to an S&P Global Platts survey released Wednesday.

Also Wednesday, in a monthly report, the EIA lowered its 2021 growth forecast for global consumption of petroleum and liquid fuels by 500,000 barrels per day from its August forecast, to about 99.6 million barrels a day, even as it raised its 2020 forecasts for WTI and Brent crude-oil prices, natural-gas prices, and U.S. crude production.

Read:How a big decline in China’s oil imports may ‘test the resiliency of the market’

Rounding out action on Nymex, prices for the October natural gas contract
NGV20,
-3.78%

 settled at $2.323 per million British thermal units, down 8 cents, or nearly 3.5%.

The U.S. Energy Information Administration reported Thursday that domestic supplies of natural gas rose by 70 billion cubic feet for the week ended Sept. 4. That was a bit higher than the increase of 64 billion cubic feet forecast by analysts polled by S&P Global Platts.



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After U.S. tech gains, European stocks pause as ECB decision awaits


(FILES) This file photo taken on March 12, 2020 shows flags of the European Union fluttering in front of the headquarters of the European Central Bank (ECB) in Frankfurt am Main, western Germany.


daniel roland/Agence France-Presse/Getty Images

European stocks were steady on Thursday, ahead of a European Central Bank decision and press conference in which expectations are for the central bank to raise concerns about the rise of the euro.

Up 1.6% on Wednesday, the Stoxx Europe 600
SXXP,
+0.16%

was little moved at 369.70.

U.S. stocks, particularly in the tech sector, broke a losing run on Wednesday, as the Nasdaq Composite
COMP,
+2.70%

rallied 2.7%. U.S. stock futures
ES00,
+0.05%

were modestly higher Thursday.

The ECB decision is due at 1:45 p.m. Central European time (7:45 a.m. Eastern), though analysts are focusing on the press conference with President Christine Lagarde at 2:30 p.m.

Attention also is in London, where an emergency meeting is being called on the U.K. decision to unilaterally amend its withdrawal agreement. Bloomberg News reported the European Union was considering a lawsuit.

Wm Morrison Supermarkets
MRW,
-3.51%

slumped 3.7% after reporting a 25% slump in first-half adjusted pretax profits, with the company flagging higher costs and reduced consumer demand for fuel. “Some traders will be wondering if Morrisons can’t post a rise in profit when a pandemic has driven up demand, when will they register a rise in earnings,” said David Madden, market analyst at CMC Markets UK.

Chemicals group Akzo Nobel
AKZA,
+3.47%

rose 4% as the company said revenue for the third quarter will be close to last year’s levels. It reported strong decorative paint demand in Europe and South America.

Games Workshop
GAW,
+13.92%
,
which makes miniature wartime figures, jumped 13% after saying its performance for the quarter ending Aug. 30 was ahead of its expectation



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European stocks rise, diverging from U.S. tech fears


A worker assembles VW ID.3 electric cars at the Volkswagen factory on July 31, 2020 in Zwickau, Germany.


Jens Schlueter/Getty Images

European stocks advanced Monday, diverging from the U.S. after a rough week in markets.

Down 1.9% last week, the Stoxx Europe 600
SXXP,
+1.10%

rose 0.8%, with automakers including Renault
RNO,
+2.80%

and Volkswagen
VOW3,
+3.14%

advancing.

The German DAX
DAX,
+1.29%
,
French CAC 40
PX1,
+1.17%

and U.K. FTSE 100
UKX,
+1.36%

also advanced.

U.S. stock futures, which will still trade despite U.S. markets being shut for the Labor Day holiday, were lower, particularly for the tech-oriented Nasdaq 100
NQ00,
-0.94%
.

Last week the tech-dominated Nasdaq Composite
COMP,
-1.26%

lost 3.2%, its worst decline since the period ending March 20, and first drop after five consecutive gains.

SoftBank Group
9984,
-7.15%

shares dropped over 7% in Tokyo on Monday after The Wall Street Journal reported the Japanese investment group bought $4 billion worth of options tied to around $50 billion worth of individual tech stocks.

“There was no specific trigger to the selloff but after extreme bullishness driven by monetary and fiscal policies, stock prices reached levels that could no longer be justified by fundamentals,” said Hussein Sayed, chief market strategist at FXTM. “Liquidity and low interest rates alone cannot be the solution to everything, so it’s essential to see continued improvement in economic data and an end to the pandemic for sustainable upside in risk assets. ”

Germany reported a 1.2% rise in industrial production for July, which was a slower than forecast rise.

The British pound
GBPUSD,
-0.67%

weakened after the Financial Times reported the U.K. was working on legislation to override parts of the Brexit withdrawal agreement. The Sunday Express separately reported a dossier is being considered by Downing Street that would seek to limit access for European Union companies seeking to raise money in London. Talks on a post-Brexit U.K.-European Union trade deal are due to re-start Tuesday.

Associated British Foods
ABF,
+3.40%

rose 4% after saying trading in the fourth quarter ending Sept. 12 in both its food businesses and Primark exceeded expectations.



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Oil prices on track to settle at lowest since July on prospects for weak demand


Oil futures declined on Thursday, with prices for the U.S. and global crude benchmarks on track to mark their lowest settlements since July as concerns remained over the outlook for demand.

The Energy Information Administration on Wednesday reported a hefty, 9.4 million-barrel weekly drop in U.S. crude supplies, along with a fall of 4.3 million barrels in gasoline inventories, but the data also “showed a hit to demand, and the reduction in inventories is being attributed to a Hurricane Laura once-off drop,” said Phil Flynn, senior market analyst at The Price Futures Group, in a daily report.

Over the past four weeks, the amount of gasoline product supplied, a proxy for demand, was down 8.9% for the same period last year. For distillate fuels, which include heating oil, it was down 5.1%, and for jet fuel product, it was down 47.1%, the EIA reported.

Meanwhile, oil production in the Gulf of Mexico region has seen a significant recovery since the hurricane made landfall on Aug. 27. The Bureau of Safety and Environmental Enforcement on Wednesday estimated that 19.9% of the current oil production in the Gulf of Mexico was shut in, rebounding from about 84% around the time Laura reached the Gulf Coast.

West Texas Intermediate crude for October delivery
US:CL
US:CLV20
on the New York Mercantile Exchange dropped 94 cents, or 2.3%, to trade at $40.57 a barrel. November Brent
UK:BRNX20
UK:BRN
, the global benchmark, declined $1.07, or 2.4%, to $43.36 a barrel on ICE Futures Europe. Settlements around the current levels for both benchmarks would mark the lowest for front-month contracts since late July.

Traders looked to the latest U.S. economic data for hints on the outlook for energy demand. On Thursday that data were mixed, with a decline in weekly jobless claims and a jump in the trade deficit in July. A closely followed index of non-manufacturing companies — retailers, banks, airlines, health-care providers and the like — fell in August.

A rebound by the U.S. dollar has also limited the upside for commodities. Oil had previously found support as the ICE U.S. Dollar Index
US:DXY,
a measure of the U.S. currency against a basket of six major rivals, fell to a more-than-two-year low earlier in the week, but it now trades around 0.5% lower for the week so far.

“The macro picture has started to send more mixed signals to the oil market, with strength in equity markets more and more concentrated on a few indices/industries, key government bond interest rates trending lower and the U.S. Dollar index in rebound mode after the EUR/USD exchange rate hit the $1.20 level two days ago,” wrote analysts at JBC Energy, in a note.

A stronger dollar can pressure commodity prices, making them more expensive to users of other currencies.

Weakness in oil prices was also attributed to a report by Bloomberg that Iraq may seek a two-month extension to its deadline for implementing additional production cuts as part of the OPEC+ agreement. Iraq and other countries that had overproduced their quotas earlier this summer, are required to make deeper cuts to compensate.

However, Iraq later denied reports that it wanted a waver on cuts,” and instead said its committed to the cuts, said Flynn.

On Nymex, October gasoline
US:RBV20
fell 1.6% to $1.1834 a gallon, while October heating oil
US:HOV20
declined 3.7% to $1.1449 a gallon.

October natural gas
US:NGV20
rose 2.3% to $2.545 per million British thermal units.

The U.S. Energy Information Administration reported Thursday that domestic supplies of natural gas rose by 35 billion cubic feet for the week ended Aug. 28. That was generally in line with the increase of 34 billion cubic feet forecast by analysts polled by S&P Global Platts.



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