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MARKET WRAP

• OIL NEWS CONTINUES TO DOMINATE • US FISCAL FLOWS COULD SUPPORT EQUITIES

It has been a busy day in all things Oil related and the CAD has benefitted from a more positive outlook for the price of Oil going forward, whether that be due to a decrease in production, military action in the Persian Gulf or some stimulus package from the US administration. USDCAD was down today ~0.5% as it retests the April 20th high price level. Canadian data out today showed Core CPI unchanged from 0.1% but CPI down -0.3% on market analysts’ expectations.

A lack of storage at Cushing in Oklahoma and the USO ETF getting crushed, was a driver for negative prices in Oil this week and today we learn through the EIA report that over the last 4 weeks we have had a 44 million build and a break above the seasonal range. All whilst there is further demand destruction due to the coronavirus pandemic and lockdown responses by the world’s governments. From the Russian energy minister Novak, we hear that global demand was down 20-30mln BPD, which is a range that in most analyst’s opinion of what the large producers should cut by, if there is to be any support to the Oil prices. US Treasury Secretary Mnuchin says the administration is looking at different plans to support US oil prices and that he believes we could see $30 per barrel by August but the news today was that Saudi Arabia have to turn their boats around as the US may impose a ban on crude imports. This need for supporting the US oil industry comes as President Trump looks to get re-elected in November and the 10 million votes that could come from the Oil industry employees are key. Iran and Trump go head to head as Iran looks to close the Hormuz Strait but as some commentators point out this is very unlikely to happen as China is a friend to Iran and they require the oil to pass freely. US President Trump tweeted that he has instructed the United States Navy to ‘Shoot down and destroy any and all Iranian gunboats if they harass our ships at sea.’

Secretary of State Pompeo criticised Chinas role in the COVID-19 outbreak and said that China should keep to the agreement of supplying the US with PPE. USDCNY was down today but most of the other USD crosses had the greenback stronger.

US fiscal flows are massively up and around >$518bn year-on-year, with the US spending $3.37trn in total this fiscal year so far. Areas like unemployment benefits are up >$20Bn year-on-year, which perfectly describes the jobs situation and the need for the Government to step in while the public sector is on its knees. Speaker Pelosi is looking to sign off on the COVID-19 Relief bill tomorrow and last night the Senate passed Stimulus version 3.5. The next fiscal stimulus could come in as an Infrastructure Bill at around $2trn. US 10-year yields were higher today and followed the Spooz which were bid from the London open. The Risk-On sentiment meant that USDJPY traded back to the top of its 5-day range.

#Fundamentals #Macro #News

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