TODAY ON WALL STREET: We did not need a collapse in oil prices…

Mar 18, 2020 | Insights

Wall Street is heading for a plunge, on the heels of European and Asian markets, as the coronavirus crisis took an even dire turn for the global economy.

As if it wasn’t enough already… The oil cartel and its allies – Opec+ – added an unknown to the coronavirus equation on Friday when they failed to agree on a further reduction in pumping to sustain barrel prices. Contrary to what everyone thought, Russia refused to bend. The black gold then suffered a severe setback.

But that was nothing compared to what happened over the weekend. “Do you want the prices to fall? You’ll see,” Saudi Arabia replied. Riyadh decided to open the floodgates wide. In the market, it came down to this: oil is down 30% this morning. Brent is trading at $35.60, compared with nearly $70 at the start of the year and $86 in October 2018. The good news is that prices at the pump will fall. But since we are no longer allowed to move anyway because of the coronavirus…

Investors are getting more and more concerned about the behavior of Crown Prince MBS’s and its Impact on the world economy. Especially as it just emerged that he is locking up his rival family members on dubious treason charges, a practice usually seen in despotic regimes…

Modeling the consequences of this new oil war is complex. One could mention the damage that will be suffered by the American shale oil industry in the short term, which is perhaps the primary intention of Russia. But modelling its consequences in the midst of a coronavirus storm is even more difficult. The epidemic continues to progress with its share of cancellations, restrictions and even strict quarantines, as in northern Italy, where the mortality rate is higher than in other areas. In China, the number of cases is levelling off but has not yet reached the tipping point. All countries are learning as best they can how to manage the situation on the ground.

Compared to last week, the debate has shifted to how to support businesses caught in the economic air pocket of the epidemic, from the largest to the smallest. It is on the front page of all newspapers. It is also a thorny but vital subject. A somewhat coordinated political response would be welcome.

The indices of economies with a high exposure to trade (Japan) or raw materials (Australia) are collapsing. Leading indicators in Europe and the United States are in a crashing mood: the CME indicated that US futures contracts hit their technical lows of -5% overnight.

To end on a positive note, the US jobs numbers for February were fine…

There isn’t many macroeconomic indicators today, with the exception of industrial production and the trade balance in Germany.



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