Archives of “April 2, 2020” day

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Indonesia central bank says in discussion with Fed for possibility of swap, repo lines

  
  Analysis
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The dollar squeeze in emerging markets is where the problem is at

Indonesia is one of the EM countries where they have higher dollar-denominated debt than they do FX reserves. That is not a good spot to be in during this kind of market environment.

The swap lines offered by the Fed is good to address the needs by local banks on the receiving end as they start to run empty on dollars.
However, the true value of the Fed’s liquidity measures relies on how banks can also help get these dollars to corporates for their working capital requirements or cash buffers.

How effective is all of this remains to be seen but at least there is no reoccurrence of the dollar panic that we saw a few weeks back so that is something I guess.

China is to start buying oil for state reserves after sharp drop in prices – report

  
  Analysis
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Bloomberg reports, citing people with knowledge of the matter

Bloomberg reports, citing people with knowledge of the matter

The report says that China is moving forward with plans to buy up oil for its emergency reserves after the epic crash in oil prices over the past few weeks.

Adding that Beijing has asked departments to quickly begin filling tanks and options to lock in the current low prices in the market. Also noting that Beijing may use commercial space for storage as well – in addition to its state-owned reserves.
I don’t think this comes as much of a surprise as China is the biggest crude oil importer in the world, and there has been so much speculation of them doing this already. There were even reports on this as far as three weeks back as seen here at the time.
But at least with China stepping in, it may help to briefly support prices somewhat in the near-term but don’t expect this to change the grand scheme of things.

Saudi supports cooperation to stabilise oil market, blames Russia for current turmoil – Gulf source

  
Analysis, Crude
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Actions speak louder than words

Oil

According to Reuters – citing a senior Gulf source familiar with Saudi Arabia – the kingdom “has always welcomed cooperation among oil producers to stabilise the market, based on the principles of fairness and equity”.

Adding that producers were forced to end all voluntary supply restraint because of Russia’s rejection to deeper oil output cuts in the OPEC+ meeting last month.

“It was Russia’s position that triggered the collapse of the OPEC+ agreement.. this caused massive instability in oil markets”, said the source.

Well, actions speak louder than words. The fact that both sides continue to put on this show for the world, where they are still not talking, just means that no real cooperation is imminent and that continues to bode ill for oil prices so long as this continues.

Trump says he will meet with oil companies on Friday

  
  Analysis

US President Trump says he believes Putin and Saudi Arabia’s MBS will stop their dispute

“I have confidence in both that they’ll be able to work it out.”
The impact of low oil prices in the US has been felt very hard by shale producers. The US would like higher oil prices to give the companies a boost and get them into profitable production
Also – Trump estimates that gas will be 99 cents a gallon, describes it as a tax cut. He is correct except with lock downs in place demand for petrol (sry, gasoline) has plummeted. Estimates put US gasoline consumption down around 40% y/y

Deficit discipline is dead

  
  Analysis
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Debt is no longer a four-letter word

The legacy of the coronavirus crisis may be that it kills the idea that deficits matter.
The Tea Party derailed Obama’s legislative agenda, lamenting high deficits. At least 12 Senators and at least 50 members of the House were elected on Tea Party platforms. These were the most-hardcore deficit hawks in history.
Trump vaulted himself to the White House by tapping Tea Party sentiment. Here’s a sample:
For reference, the combined deficit in Obama’s final four years was $2.19 trillion.
Yesterday, Trump tweeted this:
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The deficit in the US this year will be at least $3 trillion and probably $4 trillion.
I’m not here to point out they hypocrisy, you can get the anywhere.

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