Week in a glance: pandemic, OPEC ++, jobless claims and more

13 апр. 2020 г.

Traditionally, the week turned out to be extremely eventful and interesting: the pandemic did not subside, despite hopes, damage to the economy grew, governments and the Central Banks announced new programs to support the economy, a super-cartel was formed in the oil market - in general, it wasn’t boring.

OPEC, first transformed in OPEC +, now become (or not) OPEC ++. We have already noted that this is not a very ordinary event, since it can radically change the oil market once and for all. OPEC ++ controls almost the entire oil market, which means that the latter is completely controlled by producers who, by and large, are interested in high prices. So our medium-term purchases of oil began to sparkle with new colors.

The main current results for now are as follows. OPEC+ is ready to cut 10 million bpd for two months (from May to July), then the reduction will be 8 million bpd by the end of 2020, and then it will be 6 million bpd in 2021. Other countries that are not members of OPEC + (USA, Canada, Norway, etc.) agreed (or not) to reduce production by another 5 million bpd. According to some sources, the United States agrees to reduce production by 2-3 million bpd, Canada by another 1 million. But again, a lot of information is now "in words". For example, 1 million production cuts in Canada were announced by Russian Energy Minister Novak, but the Canadian Minister did not confirm this.

The stumbling block was Mexico, which did not want to reduce production by 400K per day, but the United States seemed to persuade the Mexicans, promising help on its part in the form of a reduction in production by 250K b / d.

Plus, the United States announced that it is opening strategic reserves with the goal of actively filling them to eliminate surplus from the oil market.

In general, this, of course, looks like some kind of happy ending, although it is obvious that all this is a very temporary and looks like a house of cards that will crumble at any time. There are more questions than answers to the agreement, starting with the trivial type of how the US and Canada will limit production, if mainly private companies conduct production there, ending with issues of controlling production in Russia. But here and now for the oil market it is like a breath of fresh air.

Among the other events of the week, we note another failure in the US labor market: the loss of almost 17 million jobs in 3 weeks (10% of all employed in the country) is something that not a single analyst in the world could predict six months ago. Now this is a part of reality. And far from the fact that this is a peak. By no means, analysts now expect unemployment at 20% (forecasts by JP Morgan), so we are monitoring jobless claims this week and are waiting for another failure (the influx of people who want to register their status does not dry up, and registration authorities simply cannot cope).

Against the background of this information, the Fed also responded to the measures already announced that it would provide an additional $ 2.3 trillion in loans to small businesses and municipalities, as well as support the market for high-yield corporate bonds.

The EU also did not sit doing nothing. After two days of intense negotiations, the countries agreed to allocate 500 billion to help the economy of the Union.

The Bank of England went all in and just decided to turn on the printing press. Desperate times require desperate measures. For the pound it is a very alarming signal.

The coming week after over saturated previous ones seems to be a week of respite. Of global events on the horizon, perhaps, is the publication of China's GDP for the first quarter on Friday.

As for our positions for the current week, the EURGBP purchase will be our favorite position of the week - the pair looks very attractive and promising, especially against the background of news about Eurozone help and the depth of economic problems in the UK, and the prices themselves are quite interesting for buying. We are returning to the idea of buying oil not only in the medium term (this position has long been relevant for us), but also intraday. In addition, gold purchases against the background of all the madness that is happening in the financial markets continue to look extremely attractive, even though our first medium-term mark of 1700 has already been achieved.

Sales in the stock market, despite all the money injections that are carried out by Governments and Central Banks, remain an idea-fix for us: how can one buy stock indices of a country when its GDP is expected to fall by 30-40%?

Intraday dollar sells have not lost their attractiveness for us, so during this week we will continue to sell dollar against major peers.
As can be seen, there are many interesting and promising positions in the markets, so there is an interesting and productive week ahead.