Weekly Market Wrap 20-24/Apr/2020

Marius Paun | London, UK | Senior dealer | Friday 24th, April 2020

Already under pressure, crude prices collapse on coronavirus effect

Crude oil made headlines worldwide on Monday after WTI May contract (West Texas Intermediate) collapsed more than 100 % and settled at negative $37.63 per barrel. It was the result of a growing glut in crude supplies and a lack of storage space. But oil prices were already under pressure from a big slump in demand facing a more stable supply given Saudi Arabia spat with Russia.

However, the fact that WTI May expired on Tuesday also played a big role in prices turning negative. Buyers were forced either to take delivery of crude with no space to store it or close the position (by selling) and possibly reopen it using June contract. Interactive Brokers was the first casualty to come forward after reporting oil margin losses of around $88 million.

The US stock markets recovered from the spillover effect of crude turmoil and seem to post a mixed performance for the week. President Donald Trump said on Tuesday he will suspend immigration for 60 days to ‘protect the US workers’. Elsewhere, the US Senate passed another Covid-19 relief package for small business amounting to $484 billion. It followed news the previous one, $350 billion was used in just two weeks. The weekly jobless claims figures showed another 4.4 million US workers are unemployed now bringing the total to over 26 million (estimated 15%).

People’s Bank of China cut one and five-year lending interest rate mainly to support the property sector considered an important factor driving demand in the country. Displaying optimism on the back of his nation reopening for business, Chinese President Xi Jinping said that positive momentum for his country’s economy has not changed! Really?

Meanwhile, in Europe, there is still a big divide between members of the EU on whether the coronavirus recovery fund should award grants or loans. Nothing new there on the subject with more political clashes leading to more can-kicking leading to more… At the same time, German Chancellor Angela Merkel pledged to back a huge reconstruction package for the EU but she wants to know how and where it will be spent? Good luck agreeing.

We also had the eurozone flash services PMI data for April showing a collapse to 11.7 versus expectations of 22.8. That exceeded anything seen before in 20 years of data collection. UK services PMI did not fare much better coming in at 12.3 versus anticipations of 27.8. The report also indicated that in Britain an estimated 81% of service providers and 75% of manufacturing have seen a decline in business conditions because of lockdown.

On a different, more positive note, the UK Health Secretary Matt Hancock announced that human trials for a vaccine developed by the University of Oxford began on Thursday.

Gold prices moved down at the beginning of the week on the oil induced selloff to $1659. Since then it has rebounded above $1700.00 mark and seems on course to retest the recent high of $1747.13 reached on April 14th.