Improved Prospects for an Oil Production Agreement Sends Price Higher

April 9, 2020

West Texas Intermediate crude oil rose 3.9%. Optimism is growing that Saudi Arabia and Russia will end their dispute over production cuts. Elsewhere among commodities, the price of gold advanced 1.5% overnight and is above $1,700 per ounce.

Markets are gliding into the long Good Friday/Easter holiday. Mexico, New Zealand and Norway were shut this Maundy Thursday. Investors are keenly awaiting the U.S. weekly jobless insurance claims data, with another huge increase anticipated. Canadian March labor force figures are due very soon.

The Bank of Korea, which on March 16 had cut its policy rate by 50 basis points to a record low of 0.75% at an unscheduled meeting, today left the stance unchanged after the normally scheduled review. Officials anticipate growth this year below 1.0%, and inflation easing to around 1%. As central bank officials await clarification about how much damage the coronavirus inflicts on the economy, they aren’t ruling out a further rate reduction. Meantime, other tools are being employed to boost liquidity and promote bank lending. Last month’s rate cut followed reductions of 25 basis points in November 2018 and both July and October of last year.

The National Bank of Serbia’s policy rate was sliced by 25 basis points today to 1.5%. Previous cuts were engineered of 50 basis points in March and 25 bps each in July, August and  November of 2019. “Indicators from the international environment signal that the negative effects of the virus on global economic growth are stronger than expected.”

FOMC minutes from the March 15 meeting published yesterday afternoon by the Federal Reserve acknowledge that U.S. economic prospects had deteriorated sharply and that the economy will be taking its cue from the uncertain evolution of the coronavirus pandemic.

In Asian stock markets overnight, share prices rose 4.2% in India, 1.4% in Hong Kong, 1.3% in Singapore and 1.6% in South Korea but closed flat in Japan. Markets in Europe so are are down 0.9% in Switzerland and 0.3% in France but up 1.0% in Great Britain, 0.5% in Spain and 0.2% in Germany.

Ten-year sovereign debt yields slipped overnight by six basis points in the U.K. and 4 bps each in the United States and Germany.

The dollar is unchanged against the Swiss franc and yen, down 0.6% versus the Mexican peso, 0.3% relative to sterling and 0.1% vis-a-vis the Aussie dollar, euro and yuan, but up by 0.3% relative to the loonie and kiwi.

Economic statistical releases today underscore the virtually unprecedented global nature of the coronavirus shock to economic activity from both the supply and demand sides.

Many British data got released Thursday. Industrial production edged 0.1% higher in February and matched January’s on-year drop of 2.8%. Construction output in the U.K. recorded considerably larger-than-forecast declines in February of 1.7% from January and 2.7% from a year earlier, which was the largest 12-month rate of decrease in 14 months. The British goods and services trade balance swung from a GBP 2.409 billion surplus in January back to a GBP 2.793 billion deficit in February thanks to a nearly 6% plunge in exports. The merchandise trade gap widened more than twofold to GBP 11.487 billion. Monthly GDP edged down 0.1% in February; the December-February level of activity was just 0.1% above the September-November average. Finally, the Royal Institute of Chartered Surveyors’ monthly house price balance index sank from 29% in February to a 3-month low of 11% in March.

Japanese machine tool orders in March were 40.8% fewer than a year earlier. Consumer confidence in Japan slumped to an 11-year low in March, printing at 30.9 versus 38.3 the month before.

Consumer confidence in Thailand dropped 14.5 index points in March to its weakest reading since February 1999.

Germany ran a EUR 23.7 billion current account surplus in February, yielding a two-month total of EUR 40.6 billion versus EUR 33.4 billion in January-February of 2019. The seasonally adjusted merchandise trade surplus of EUR 21.6 billion was larger than EUR 18.5 billion in January and the monthly average of EUR 19.2 billion in each of the final two quarters of last year.

Irish CPI inflation slowed 0.4 percentage points to a 5-month low of 0.7% last month, but that economy experienced a 0.6 percentage point rise in the jobless rate to 5.4%.

Greek industrial production in February was below its year-earlier level for a fifth straight month, this time by 3.4%.

Canadian unemployment shot up 2.2 percentage points in a single month to 7.8%, and 1.011 million jobs were lost in March. Labor participation fell 2.0 percentage points to 63.5%, and on-year growth in average hourly wages accelerated to 6.1%.

U.S. producer prices dipped 0.2% on month in March, trimming the 12-month rate of increase to 0.7% from 1.3% in February. Core PPI remained at 1.4% instead of easing marginally as many analysts were expected.

New U.S. jobless insurance claims again exceeded six million last week but at 6.606 million were a bit fewer than in the prior week when such tallied 6.867. Over the latest four reported weeks, new claims averaged 4.265 million per week.

Still to come: U. Michigan consumer sentiment index for March.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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