Week in a glance: negative oil prices and sad stat data

27 kwi 2020

The main event of the past week, without a doubt, was the epic failure in the oil market on Monday and the drop of May oil futures quotes into a deeply negative zone (up to - $ 50 per barrel). We wrote about the reasons for this in our reviews. The bloodbath continued on Tuesday when the world's largest oil futures ETF fund decided to reposition itself from June futures contracts into longer terms contracts.

These events spread panic not only in the oil market, but also in the financial markets in general. At the same time, our confidence in the medium-term oil purchases is still here. Given that both crashes on Monday and Tuesday were related to technical issues, our global argument did not suffer from them. It is difficult to worsen the current fundamental background for oil. But it is to improve it. So we stay in buy position.

After the shock in the oil market subsided somewhat, economic data came to the fore. Which turned out to be worse than the most pessimistic forecasts. Indices of business activity in the Eurozone, the UK and the US came out just disgusting. As well as jobless claims figures in the United States (+ another 4.4 million).

In this regard, we definitely keep on recommend to sell in the US and EU stock markets.

An additional motivation for sales is the potential second wave of the pandemic, which, apparently, even without partial removal of restrictions, begins in Germany and Spain. In any case, a sharp jump in disease after weeks of declining is a very bad signal.

After retail sales in the UK demonstrate record drop in the entire history of observations, we recommend to sell the pound not only in the EURGBP pair, but also in the GBPUSD pair. That is, this week we buy EURGBP and sell GBPUSD. EURUSD sales also seem like a good idea in light of extremely weak data on the Eurozone and Germany in particular.

Bank of Russia cut the rate by 0.5% on Friday. The event, although expected, is definitely negative for the Russian ruble. And the fact that it has not yet dropped does not cancel its inner weakness and general doom to decline. So this week we will actively buy USDRUB. With the worst outcome, this will be a good hedge for our oil purchases. In 2020, the correlation coefficient between the Russian ruble and oil is 0.98, that is, with a probability of 98% a decrease in oil prices will provoke a decrease in the ruble.

The upcoming week does not promise to be simple. The publication of US GDP for the first quarter, meetings of key global central banks (the Fed, the ECB and the Bank of Japan), as well as a bunch of other macroeconomic statistics guarantee a surge in volatility.