The Daily Dose; Is Stimulus Over?

-Stimulus meets the surrealism of populism.

-First-half optimism is starting to fade.

Crude oil prices were in retreat early in the Friday session amid jitters over global economic recovery plans. Risk analysts expect Jenga-like challenges will erupt in emerging markets that may lack the healthcare infrastructure to deal with the pandemic. Elsewhere, the Chinese appetite for oil seems to have slowed from the June buying frenzy, while European leaders squabble over a bloc-wide stimulus package. In the United States, meanwhile, the quarantine economy may be leaving a large swathe of unaccounted consumer debt in its wake. With the first half of the fiscal year behind us, the next half looks to begin on a sour note.

The price for Brent crude oil was down 0.76% as of 8 a.m. ET to trade at $43.04 per barrel. The global benchmark for the price of oil is headed for a slight loss on the week as the trade structure oscillates around the low-$40 mark. Front-month curves, meanwhile, continue to paint a picture of an oversupplied market.

India joined a grim group of major economies tipping the coronavirus scales at more than 1 million new cases. Analysis from Verisk Maplecroft finds emerging and developing economies are under pressure from the latent rise in infections and creating political fissures similar to the fault lines in the United States. From parts of the African continent to East Asia and the Middle East, the risk consultant group warned of a “perfect storm” as governments try to address lingering, and deep, economic concerns and new ones stemming from the pandemic.  

“Our base case from January – that 2020 will see a surge in protests and that the coming decade is set to be a one of unprecedented unrest – still stands,” Verisk Maplecroft Principal Analyst Miha Hribernik was quoted by the Reuters news agency as saying. “But in the countries least prepared to bounce back from the pandemic, it now looks like a best-case scenario.”

According to the International Monetary Fund, those economies could shrink by a collective 1% this year. And while that’s far less of a contraction than expected in the developed economies, the developers have less room for maneuvering. According to economists at the Organization of Petroleum Exporting Countries, Indian crude oil imports are at six-year lows, inventories are on the rise and refinery runs are on the decline. In China, after going on a spending spree to take advantage of lower crude oil prices, its imports too are on the decline. And in the United States, renewed lockdowns are curbing consumer demand, with retail watcher GasBuddy reporting retail gasoline demand falling some 5% from the previous week for the period ending July 11. The downturn in the US comes just weeks before federal stimulus ends, creating real concerns of major economic damage due to stubbornly-high unemployment levels. Big banks, drawing a page from the Great Recession, are now worried about unaccounted consumer debt.

“This week saw more reopening measures being reversed,” said Vandana Hari, founder and CEO of Vanda Insights, in a note emailed to The GERM Report “As we have said before, this could stall the US’ oil demand recovery.”

On Friday, British Prime Minister  Boris Johnson announced plans for gradual economic reopening, saying he was somewhat optimistic that life would return to “normal” before the Christmas holiday.  British GDP contracted 19.1% during the three months to May. And while second quarter figures show a rear-view image, the British Office for National Statistics reported the nation’s economy was struggling. With social restrictions still in place, some segments of the economy “remained in doldrums,” statisticians said.

European policymakers, for their part, put on their face masks in Brussels for rare face-to-face meetings over the next financial stimulus package. Dutch opposition to helicopter money and Hungarian veto threats hang over a bailout that could top the $1 trillion mark. European Commission President Ursula von der Leyen said before the meetings that “the stakes couldn’t be higher” for the continent. Investments banks have been increasingly vocal about the need for continued fiscal support, though the rise of populism and the politicization of the coronavirus makes for complex and difficult decisions.

“I must say that the differences are still very, very big,” German Chancellor Angela Merkel was quoted as saying. “I expect very, very difficult negotiations.”


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