Oil was the story again on Friday, although you’d be forgiven for suggesting the past two sessions represent something of a false dawn.
On the heels of Donald Trump’s bombastic claim that he managed to compel Mohammed bin Salman to orchestrate a production cut of as much as 15 million barrels per day with Vladimir Putin, OPEC+ is set to hold an emergency meeting on Monday.
It will be a virtual affair, and one delegate said the coalition wants producers outside the group to attend. Presumably, that means OPEC+ would like for US producers to participate in any cut, something that’s been floated recently. Trump will meet with oil executives at the White House on Friday.
One delegate who spoke to the media said that if global producers agree to participate, the market could “realistically” see a cut of 10 million barrels a day.
The problem, though, is that 10 million isn’t a number that can be “realistically” expected to calm the market given the unprecedented demand shock stemming from the coronavirus containment measures. Goldman, for example, said the market likely suffered 26 million barrels of daily demand destruction this week. Some estimates have the near-term numbers even higher than that.
Global oil demand virtually never shrinks on a yearly basis, but it surely will in 2020. And likely by quite a bit.
Meanwhile, the PBoC will apparently hold off on a deposit rate cut, something market participants had been hoping to see for months.
China offered more incremental easing on Friday instead, this time in the form of a 100bps reduction in RRR for rural banks and small city commercial banks. That will free up some 400 billion yuan in liquidity. The move will be implemented in stages, starting on April 15 and concluding with a second tiered reduction on May 15.
This comes on the heels of a large, 20bps cut to the 7-day repo rate earlier this week, a move that sets the stage for a similar-sized reduction in the loan prime rate (the de facto benchmark) later this month. The PBoC also lowered the rate paid on excess reserves to 0.35% from 0.72% effective next week.
This is more dribs and drabs, but targeted easing (the RRR reduction for the rural and city banks is clearly aimed at getting credit to SMEs who faced an existential crises during the epidemic) has been somewhat effective and when you throw in recent nods to deficit spending (e.g., hints that the self-imposed 3% line in the sand will be abandoned) the hope is that Beijing can once again tweak and tinker its way out of a crisis.
Some have urged China’s leadership to abandon deficit goals altogether amid the dramatic hit to the Chinese economy, which is now seen contracting sharply.
These are your tangential storylines on Friday, although focus will turn to the US economy for the remainder of the day.
PMIs out of Europe overnight were an unmitigated disaster, and while the March jobs report stateside will be mostly stale, it will still contain clues about the coming storm for the world’s largest economy.
