The GERM Report

-What Martin Heidegger can tell us about the market.

-Donald Trump is angry. Very very angry.

Crude oil prices were in retreat in early Friday trading as investors fretted over what an angry US president may say in response to mounting Chinese tensions. The president was rattled early this week after the social networking site Twitter applied a fact-check to a comment on mail-in voting. On Friday, the site tagged one of his comments for glorifying the violence in Minneapolis, a city upset by racially-charged riots. Crude oil prices have moved past the zenith of pain to settle in the mid-$30 per barrel range. Demand is starting to return and inventories are starting to decline. But data-mining a market only goes so far. It’s mood and sentiment about that data that matters. And the mood is dark.

The spot price for Brent crude oil was down some 1.5% as of 8 a.m. ET to trade at $35.45 per barrel. With the Brent contract for July set to expire, most of the trading is now in August, though futures were in negative territory through December. Brent rallied a whopping 40% or so on the month, though a quick survey of analysts shows the price band is settling in at current levels.

US President Donald Trump has a news conference scheduled for Friday to discuss China’s ever-tightening grip on Hong Kong. US Secretary of State Mike Pompeo notified lawmakers this week that autonomy was no longer apparent in one of the world’s most active financial centers. That decision raised doubts over the hub’s essential status in the world economy, sending jitters through a market that was just starting to reopen from its quarantine slumber. Looking from the eye of the trade-war hurricane, IHS Markit forecast a 0.1% dip on global GDP for 2018, a 0.8% hit for 2019 and a 1.4% blow for 2020.

“The timing of the trade war (never good) could not be worse,” analysts wrote – long before the coronavirus pandemic pushed GDP growth into negative territory.

According to the latest GDPNow model from the Federal Reserve Bank of Atlanta, US GDP for the second quarter is estimated at negative 40.4%. On Thursday, the US Commerce Department revised its estimate for first quarter GDP down 0.2% to negative 5%, and much of the first quarter was quarantine-free. About a quarter of Americans are out of work, personal income levels are expected to show a 2.1% contraction and consumer spending for April is expected to show a 13% decline. The price of oil is on pace for its biggest monthly gain ever, but there are few reasons yet to celebrate.

Trump on Friday takes steps on punishing China for its assertiveness over Taiwan. The so-called Phase 1 trade deal that ended the bruising economic war between the two global giants has yet to come close to its promise. Signed in January, China is obliged to an extra $18.5 billion in purchases of US energy products this year, but has only spent about $3.6 billion on energy goods through April. Angered by media watchdogging, the president can be expected to wear his emotions on his sleeve when he tackles the China question later on Friday. Eager to keep the market moving in his favor, the president can be expected to go big on politicking but soft in terms of the economic stick. That leaves his rhetoric to set the market mood and the macro view is one of perception. A profile of the president’s social media presence from The New Yorker finds him “meaner, angrier, and more partisan than ever before.”

In his seminal Being and Time, the German philosopher Martin Heidegger challenged the conventional position of Aristotle, Descartes and others that cognition was separate from our surroundings. Instead, Heidegger said our cognition is intertwined, and thereby inseparable, from our surroundings. The “referential totality,” to use Heideggerian terms, in the market means that data only means what we think it means.

What the smart people in the room think the data means is that $30 something a barrel is here to stay. While forecasting crude oil prices too far in the future can be something of a fool’s errand, it does provide an indication of market perception. A survey of 43 analysts from the Reuters news service finds the price for Brent would average $37.58 per barrel this year. Energy analytical firm Petrologica sees Brent at $34.49 per barrel on average for 2020. The average of the two, $36.04 per barrel, is some $28 per barrel lower than last year and $35 per barrel lower than 2018. While economic recovery is indeed taking place, things aren’t always as they seem.

“The crude oil rally that emerged following the sub-zero collapse on April 20 is showing the first signs of pausing,” wrote Ole Hansen, the head of commodity strategy for Saxo Bank.