This week saw a huge sell off in the US oil market. As May’s contract expired future traders became desperate to offload oil resulting in prices actually going negative -$40 a barrel. This large sell off in oil resulted in stock market falls for the early part of the week. However, June’s US oil contact showed some signs of stabilisation as prices found support from the $11 a barrel level midweek. Historic low eurozone PMI data on Thursday underscored just how deep the contraction is likely to be for Europe due to COVID19 lockdowns and recent global stock recoveries look very fragile when seen in this light.

Key events from the past week

  • US oil: Oil plunges, Monday, April 20. US oil fell into negative territory for the first time in its history. Falling demand from locked down countries due to COVID19 has led to a vast over supply of oil which caused prices to actually go negative. May WTI started Monday at $17.82m but fell to a -$40.32 per barrel low.
  • RBNZ: Buying Gov’t debt, Tuesday, April 21. Governor Orr says that he is open minded about the central bank buying debt directly from the Government. This is a worrying sign and Bloomberg reports that in theory this could result in a slump in bond prices and the NZD.
  • EU: Eurozone PMI’s, Thursday, April 23. Eurozone PMI’s came in at 11.7 vs 22.8 expected and this was the weakest reading in over 20 years. With large sections of Europe still locked down to contain COVID19 Q2 data looks set to record a huge downturn for the eurozone.

Key events for the coming week

  • USD: Fed Interest Rate Decision, Weds, April 29. The expectations from the OIS contract prices are 75% chance of no change in interest rates from 0.125%. However, the bias is towards lower rates for the FED, so watch out for a surprise cut that would weigh further on the USD.
  • EUR: ECB Interest Rate Decision, Thurs, April 30. The OIS contract prices have a 46% chance of no interest rate change next week. However, there is a 54% chance of a 10bps rate hike which would support the EUR.
  • Coronavirus: Watch out for the latest virus news. Watch to see if a further slowdown in the spread of COVID19 will support equity markets this week. However, if we see a pickup in cases and deaths this week watch out for a return to a risk ‘off’ market.