OPEC was supposed to have a “virtual” meeting with the Russians today to discuss the oil price.
This followed some exited tweeting from the Trump Twitter feed on April 2.
However, that meeting has been postponed until Thursday. Comments from Russia and Saudi Arabia over the weekend, have caused the oil price to drop somewhat so far, CNBC reports.
We are in the rather unusual situation of the possibility of having a very sudden and very severe demand shock for oil. Basically, it’s the 1973 oil price rise in reverse. In October 1973, the members of the Organization of Arab Petroleum Exporting Countries proclaimed an oil embargo that was targeted at nations that were perceived as supporting Israel during the Yom Kippur War.
The economic effects today are also, very roughly, the reverse of 1973.
Last Friday’s U.S. employment situation report was really “weak.”
Please take care, investors should consider the data as not fully reliable for the very simple reason that surveying businesses for payrolls data requires businesses to be “open” and “not in lockdown.” Surveying households may also be much more difficult to do.
The good news was that basically all the increase in unemployment was people describing themselves as temporarily laid off. This is the so-called “furlough,” which in the United States means no wages while claiming unemployment benefits that is often still with healthcare benefits and with the prospect with a job in the future.
In Europe, furloughed workers do not add to the unemployed total and receive most of their wages.
So, one could say that a U.S. furlough is basically a harsher version of the European furlough. In both cases, furloughed workers are not going to be doing anything. So, any contribute to GDP will be via consumption, not via economic activity.
All this means that U.S. unemployment rate will exceed European unemployment rates, but one should better keep in mind that this will no longer be a realistic “like for like” comparison.
The important issue here is what happens at the end of phase 1 when the lockdowns will be eased. If employers still exist, furloughed workers go back to work. If employers have gone bust, then there will be no job to go back to, and the downturn of phase 1 will last longer.
So, employment numbers need to start being considered alongside indications of business failures.
European furloughed workers probably could have some excess cash, saved up while under lockdown, as their income is still largely intact and there is less to spend money on.
U.S. workers do not have that and the unemployment benefit is low, though there is, of course, the promise of $1,200 in the mail from the U.S. government.
At this stage, the European scheme seems more likely to let consumers support the economy at the end of phase 1 and shorting hereby the duration of the downturn.
However, it is again important to stress that now, labor market data cannot be compared directly across the Atlantic and that could weigh on investment decisions making.
In the meantime, the new Governor of the Bank of England (BoE) Andrew Bailey who is by the way an economist, has been making it very clear that the UK Central Bank will not be conducting monetary financing, otherwise known as “printing money” in order to pay for the debt that is currently being required, Reuters reported.
Central Banks will need to continue to control inflation and the moment that proper money printing starts that becomes very difficult to do. Quantitative policy is not the same thing as monetary financing, basically because quantitative policy can be reversed to maintain price stability while monetary financing cannot.
That said, one could Bailey’s standpoint see as being somewhat on the same page as what top conservatives in the House stated in their letter they have sent on Friday to President Donald Trump and wherein the lawmakers argue that the bills recently passed by Congress aimed at mitigating the financial fallout from the outbreak have not yet fully taken effect, adding they believe calls for subsequent bills are premature, the Hill reported.
Besides all that, Germany's most recent industrial orders data, which is important in the context of measuring global growth, dropped 1.4 percent month-on-month (m/m) in February, which was better than market expectations of a 2.4 percent drop, but that came after a downwardly revised 4.8 percent gain in January. Foreign orders fell by 3.6 percent, while demand from the Euro Area was down 5 percent and other countries down 2.7 percent.
Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.
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