In the past week, crude oil price has probably been the most important topic in global financial markets. The price of the American light oil WTI (West Texas Intermediate) fell to a negative on Monday during the expiration of the May futures contract for the first time in history, when at one point it traded at an incredible level of $ -37 per barrel. At this point, sellers were paying buyers to take their crude oil. The situation has stabilized since the expiration of the May contract and the June contract is currently trading at $ 15.
The price of the North Sea Brent is currently trading at $ 21, which represents another strong weekly decline of 24%. Since the beginning of the year, the North Sea Brent has been down 68%. This is due to nothing more than the impact of the global pandemic on the demand side of the market. Although the OPEC cartel, together with Russia, approved production cuts of 9.7 million barrels per day, according to current estimates, global demand has fallen by more than 30 million barrels. The global oil market is thus currently in strong imbalance and storage capacity is slowly beginning to run low.
Other key news included the April PMI Purchasing Managers' Indices. They confirmed that advanced economies had plunged into the deepest recession since World War II, from Japan, through Europe, to the United States. The US labor market situation remains very unfavorable, with the US economy losing an additional 4.4 million jobs in the week ending April 18, bringing the total to 26.5 million of newly unemployed in the five weeks since the global pandemic began.
Investors have also started to get rid of Italian government bonds to a greater extent, with the yield on the 10-year bond going well above 2% (prices and bond yields are moving in the opposite direction). It seems that the European Central Bank will need to significantly intensify its bond purchases in order to keep the interest costs of servicing the Italian government debt within acceptable limits.
There has also been speculation in the market that the ECB, following the example of the US Fed, could start buying corporate bonds with a non-investment speculative rating (high-yield), which would be invaluable support for those European corporations that are heavily indebted. As a result, global stock markets declined 2% last week, according to the broadest MSCI All Country World index, and have been in the minus 16% since the beginning of the year. In the last 12 months, global stock markets have been in the red for 10%.
Investment Strategist at Conseq Investment Management, a.s.