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Bob Mason
What Happens To The Global Economy If Oil Collapses Below $40 – PART II

On the Macro

It’s a quieter week ahead on the economic calendar, with just 41 stats to monitor in the week ending 10th April. In the week prior, 78 stats had been in focus.

For the Dollar:

It’s a particularly quiet week ahead for the greenback.

April prelim Michigan Consumer Expectation and Sentiment figures on Thursday will garner plenty of attention.

In March, both indexes took a sizeable fall but with containment measures now in place until the end of April, further downside is anticipated.

Inflation figures due out on Thursday and Friday will likely have limited impact. With consumption on the slide in March, it will be a question of how bad rather than if there are deflationary pressures.

Expect the weekly jobless claims figures to also influence. Will the markets be able to stomach another weekly surge?

At the start of a shortened week, February JOLTs job openings should have a muted impact…

Outside of the stats, chatter from the Oval Office and the latest updates on the coronavirus will need consideration.

On the monetary policy front, the minutes on Wednesday will also draw interest as the markets look for what ammo the FED has remaining.

The Dollar Spot Index ended the week up by 2.25% to 100.576.

For the EUR:

It’s an even quieter week ahead on the economic data front.

German factory orders and industrial production figures for February are due out on Monday and Tuesday. In the 2nd half of the week, German trade data for February is also due out.

We don’t expect the numbers to have any influence, however, with March and April figures of greater significance.

Outside of the numbers, the EUR could find support should the spread of the virus begin to ease across the region. Concerns over the economic outlook would limit any upside, however.

The EUR/USD ended the week down by 3.05% to $1.0801.

For the Pound:

It’s a relatively busy week ahead on the economic calendar.

While on the busier side, the markets will need to wait until Thursday for key stats.

February industrial and manufacturing production and GDP figures will be in focus on Thursday. With the numbers being for February, however, any upside from positive numbers would likely be muted.

Expect February’s trade data to be brushed aside on the day.

Outside of the numbers, progress on Brexit negotiations and coronavirus news will be the key drivers.

The UK saw a relatively large increase in new cases last week but continues to fare better than its neighbors. Should this continue, the Pound will likely be relatively resilient to any risk aversion.

The GBP/USD ended the week down by 1.53% to $1.2269.

For the Loonie:

It’s a relatively quiet week ahead on the economic calendar.

March Ivey PMI numbers will garner some attention on Tuesday. Following 2 emergency moves by the BoC, however, the markets will want to wait to assess what impact monetary policy has had on the economy. This will take some time…

The numbers will, however, give an idea of how badly the sector has been affected by the global shutdown.

On Thursday, the focus will then shift to March employment figures. Expect the employment change number to have the greatest influence in the week.

Housing sector numbers on Wednesday should have a muted impact on the Loonie.

Outside of the stats, it continues to boil down to market sentiment and outlook towards consumption.

Extended lockdowns in key economies will limit any material upswing in consumption and output in China.

A planned purchase of crude oil by China and OPEC – Russia talks will certainly influence, with a sizeable cut in output required.

The Loonie ended the week down by 1.57% to C$1.4205 against the U.S Dollar.


Out of Asia

For the Aussie Dollar:

It’s a quiet week ahead on the economic calendar.

Economic data is limited to February trade data that is due out on Tuesday. While we can expect some interest in the numbers, any positive numbers will have a muted impact on the Aussie Dollar.

The global supply chain remains broken at the start of the 2nd quarter and there is no clear line of sight on when conditions will improve.

On Tuesday, the RBA is also in action. Following the emergency rate cut and rollout of its first-ever QE program, however, no moves are anticipated.

Later in the week, the RBA’s Financial Stability Review will give the markets an idea of how bad it could get, however…

Away from the calendar, expect updates on the coronavirus and anticipated impact on the global economy to remain the key driver.

The Aussie Dollar ended the week down by 2.77% to $0.5997.

For the Kiwi Dollar:

It’s a particularly quiet week ahead on the economic data front. Economic data is limited to 1st quarter business confidence figures. There are unlikely to be too many surprises here, which should limit any downside for the Kiwi.

With stats on the lighter side, the Kiwi will remain in the hands of market risk sentiment and the news wires.

The Kiwi Dollar ended the week down by 2.60% to $0.5878.

For the Japanese Yen:

It’s a quiet week ahead.

February household spending figures, due out on Tuesday, will have a muted impact on the Yen.

Machinery orders on Thursday will garner some interest, however, with Japan already impacted by the virus in February.

A sharp fall in orders would be of little surprise for the markets, however, which now needs to assess April and May data.

Outside of the stats, it will be all eyes on the U.S and the spread of the coronavirus…

The Japanese Yen ended the week down by 0.57% to ¥108.55 against the U.S Dollar.

Out of China

It’s a quiet week ahead on the economic data front.

Key stats are limited to March inflation figures that will likely be brushed aside on Friday.

While there are some concerns over the coronavirus numbers out of China, any increased activity in the private sector will be well received.

Beijing will be looking to avoid a spike in infections, however, that could lead to another lockdown.

The Chinese Yuan ended the week up by 0.06% to CNY7.0915 against the U.S Dollar.


Trade Wars:

The spread of the coronavirus has led to talks of recessions and even the talk of a depression. This would certainly be the time for tariffs to be withdrawn and for the world powers to stand on a united front to restore the supply chain. It would be a bitter pill for Trump to swallow, however, with trade imbalances and currency manipulation his pet hates.

One thing is certain, China will likely fail to meet much of the trade agreement conditions, making the phase 1 agreement somewhat redundant. Turning things around before the November election will be a challenge, so there is an incentive to put a different spin on it…


Trump has certainly set crude oil prices up for a tumble, after tweeting that Russia and OPEC will cut production by a whopping 10m bpd.

WTI ended last week up by 31.8%, with Brent up by 36.8%, the upside coming after WTI tested support at $20.

An emergency meeting on Monday will decide, not only the fate of oil prices near-term but OPEC’s position in the sector. If OPEC and Russia agree to a 10m barrel per day cut in production that will give the U.S a much stronger position moving forward.

The price war is largely as a result of the continued rise in output from the U.S. Shale producers are unlikely to rein in output. It would be a surprise for Russia and OPEC to agree to such a sizeable cut in output. The U.S President may have been better off letting the 2-sides reach a common ground without intervention.

Expect a historic slump in oil prices should both Russia and OPEC fail to agree to such a cut…

UK Politics:

Brexit and UK politics, in general, is on hold as the UK government tackles COVID-19. The news wires have been particularly critical of the government’s handling of the virus. An inability to provide clarity has led to the criticism as the PM continues to self-isolate. It’s no different elsewhere, however, with many governments also facing criticism over action and, in some cases, inaction.

While Boris Johnson will need to restore calm, Brexit talks will certainly not be high on the agenda. With April upon us and Johnson’s June deadline around the corner, that extension may be on the horizon…

U.S Politics:

There’s nothing to report for now, with the Democratic Convention postponed until August. This was in response to primaries being delayed by a number of states, while others moved to a mail-in system.

Joe Biden remains the front runner for the Democrats, which continues to be market-friendly.

The Coronavirus:

The spread of the coronavirus remains the key driver in the week ahead. Across Europe, the markets will be looking for the number of new cases to begin falling off recent highs. An extended lockdown in Italy will need to start delivering improved figures to support the EUR and European major boerses.

Trump’s warning of a grim 2-weeks ahead suggests a sharp increase in new cases for the U.S. That won’t stop the markets from ditching riskier assets should the numbers be truly alarming.

With central banks and governments having made their moves, the next question will be whether it will be enough.

An extended period of lockdown suggests not…

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