The Oil slick on the journey to recovery


Market Update: 20 April 2020

As we see improvements in cases, not by just dropping, but as well a pickup in recoveries. Markets, whom tend to have a short attention span move on to the next phase – that being a measurement of the winners and losers.

Today it looks to be Oil’s turn to take focus. Oil in the nearer dated contract (May 2020) fell to an all time low of $14.47… this though is a slight anomaly as more volume is being traded on the June contract – but it makes me wonder if Oil is the new Lehmans? Hin Leong trading revealed an $800M loss in hidden trades and as has sought protection – with over USD $3bln in debt to banks (HSBC, OCBC and DBS). Governments would be unlikely to bail out trading houses unless the risk was systemic, so should this be just one of many losers in the system, banks may be in for a tougher time than we think.

Speaking of which, NAB came out today with a profit hit of $1.1Bln – this was more on Software, write-down of its Life business and compensation in wrongful financial advice.. unsurprisingly they’ve signalled more to come.

So perhaps the hard part of the pandemic is (hopefully) behind us, the next casualties are to be assessed. This can of course spill into the have/have not countries. In most part, Australia looks well positioned to outperform Europe for re-opening as geographical borders alone are quite helpful  – provided traded goods are not perceived to be infectious.

Trade wars can be reduced – as demonstrated today with a US deferral of tariffs for 90days, but permanent is not a fait accompli as Trump (and the rest of the global community) question China on how much information it’s withheld on COVID and at what cost to the global economy in both money and lives.

As we go through this transition, it makes sense that whilst VIX may have calmed, there is probably a range trade to consider and for AUD it may be in the form of 60-65c as we stumble our way through to recovery.

Australia has moved from initial top 20 to 36th in number of cases – this despite being in the top 10 of tests per capita and top 5 in recovered %.

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