Daily Outlook

Markets are growing in the hope of politicians

World markets returned to growth on Wednesday on new signs of stabilization in the number of new cases of coronavirus infection. Formally, it is too early to talk about quarantine removal. However, politicians are already indicating that they are working out details of this scenario. It inspires buyers in the markets. However, there are several reasons to be cautious even in the case of “flattening curve”.

First of all, there is the need for politicians to act together, and this often becomes a stumbling block in difficult times, when every country or political force tries to hog the blanket.

This Thursday is an important one, as it will evaluate how fast policymakers can make temporary concessions for the common good, in times when the delay costs billions of dollars every day, not to mention human lives.

An expanded OPEC conference-call is due today. According to recent press reports, the axe of the war between Russia and Saudi Arabia is buried. Officials in both countries made it clear on the eve of the meeting that they are ready for proportional cuts in production to stabilize prices in the market. However, some risk remains. The US has made it clear that reductions in output are only a matter of economic expediency. Additional restrictions can not be imposed. Once again, Trump is resorting to his favourite trick – the threat of sanctions if the oil market continues to fever.

Under these conditions, it is logical to expect that Russia and Saudi Arabia will try to find such a scale of production cuts that will keep prices from further decline, but prevent from increasing output in the US. This is a delicate balance act that requires constant coordination of efforts. However, the words “coordination” and “working together” may become synonymous with rising oil prices in the coming months.

Another critical topic is the economic support packages that are stuck in the EU and US legislative circles. Today, finance ministers and representatives of the ECB will return to the financial support program. Earlier it was reported that the ECB spoke about the need to allocate 1.5 trillion euros, which corresponds to the scale of assistance in the US and Japan. However, Germany insisted on the amount of 500 billion, returning to individualism in the approach to solving problems.

In the US, Trump was optimistic with promises of a new $500bn package as early as this week, but lawmakers say it won’t be so fast. The inter-party standoff in the election year is detaining quick decisions.

The struggle for market share among oil producers, unwillingness to pay for “someone else’s lunch” in the EU and inter-party rivalry in the US – all this can seriously lengthen the recovery and exacerbate the economic downturn. Worse yet, the delay promises to intensify the wave of financial problems for companies around the world, turning the health crisis into an economic one, then a financial one and a debt one in the end.

The FxPro Analyst Team

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