London Open: Fresh US stimulus to boost economy but oil setting the tone

Market Analysis / 2 Min Read
Stephen Innes / 22 Apr 2020

London Open 

Well, it looks like China has finished buying for their SPR this morning (sarcasm), and pressure has resumed back on front-end oil contracts. Mind you, I don't think it ever left, given the voluminous settlement risk that looms ominously with Cushing storage not only saturating but likely leased out for the next three months.

The US Senate approved $484 bn in fresh stimulus for the economy on Tuesday, which will be sent to the House for final passage later this week. This is the fourth bill in response to the coronavirus outbreak and altogether amounts to around $3 trillion. Senate Majority Leader Mitch McConnell, in an interview with Politico, however, expressed concern about the budget deficit and implied that further stimulus would be more challenging to pass. So, on that front, we could be nearing "Policy Maximus”, which as the fiscal deficits could then become a worrying proportion. 

Amid resistance to additional government spending, governors in the Southeastern US states are signaling that their economies could reopen imminently. However, they have been criticized for lack of testing compared with the Northeast.

USD vs. EM currencies could struggle until oil prices stabilize, moreso the oil price sensitive Ringgit. But oil consumers like China, India and South Korea will benefit from lower prices once economies emerge from their lockdowns. In the meantime, however, currencies of the oil-producing countries, like Canada, will struggle to rally so long as oil prices remain under pressure. 

As for the reopening outlook, a densely populated metropolis like NYC whose workers rely on public transport will be slower to emerge from lockdown than their more rural peers who are more car reliant. This makes sense as subway commuters will shy from the enclosed confines of trains.

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