The GERM Report

-There are many asterisks in the latest US jobs data

-The US is in flames, and the threat of war is growing in the Mediterranean.

Crude oil prices had modest support in early-morning trading, though it quickly faded, as investors looked for optimistic data before US demand peters out after the long holiday weekend. A fire onboard a vessel laden with some 2 million barrels of oil off Sri Lanka could be keeping a soft floor under the price of oil as well. Equities were in the grips of contagion too after the big selloff in tech stocks sparked fears of a sharp correction. Fears of a different sort too are growing in the international arena. Top bank regulators in the United States fear that partisan gridlock is undermining the US economy, while fears of war are growing in the Mediterranean.

Crude oil prices were on the rise early in the trading day, though the rally was sputtering out ahead of the open on Wall St. The price for Brent crude oil is on pace for a loss of nearly 2% on the week as lackluster demand signals became entrenched. After losses of some 3.3% over the previous two sessions, traders may be trying to get in at the bottom. Brent was up a modest 0.43% as of 8 a.m. ET to hit $44.26 per barrel, but was negative at the open.

Oil prices followed equities in posting a small rebound after heavy losses in the previous session, though commodities quickly reversed course. The bots were betting on a better bounce in US hiring, though the bots are lazy (it’s called artificial intelligence for a reason, folks). The unemployment rate improved from double-digits to around 8.4% last month. That said, the number of people last month without work who quick looking was 2 million higher than in February, though those people are not counted as unemployed. The US Labor Department reported job losses declined, though pandemic data must be taken with a grain of salt. On paper, US crude oil prices are up 325% from April levels, though it’s hardly a success story given the extraordinary dip into negativity that month. The US economy is still about 13 million jobs below where it started quarantines in March. Many of those jobs may never come back. A report from the US Federal Reserve this week found that many of the temporary layoffs are becoming permanent. And with US politics growing more toxic by the day, those tens of millions of people without a job are left without an economic lifeline in the form of renewed stimulus. That has Federal Reserve Bank of Chicago President Charles Evans nervous.

“Partisan politics threatens to endanger additional fiscal relief,” he said. “A lack of action or an inadequate one presents a very significant downside risk to the economy today.

That could translate to lackluster demand in the US during the long holiday weekend that marks the end of seasonal summer demand. Motor club AAA expects the lower-for-longer scenario for crude oil and gasoline prices to translate to increased road travel during the Labor Day holiday, though that demand slumps off considerably after the weekend. The demand destruction will be especially pronounced as the pandemic limits typical travel, such as driving to schools. Refineries, meanwhile, are in a bit of a pickle. Refineries can’t make diesel, characterized as a middle distillate, without making consumer petrol. Refiners are building up a sizeable inventory of distillates and may have to throttle back.

Analysts are starting to look more closely at the US presidential election in what’s likely to be among the more toxic events in the nation’s history. US President Trump is trying to walk back comments that voters in the swing state of North Carolina vote twice, a felony, while trying to bake in a narrative of an expected fraudulent election. The Chicago fed chief expressed concern about the economic impacts of partisan sniping, and the broader market is reacting. The Cboe Volatility Index, Wall Street’s so-called fear index, is at a 10-week high.

Fear may be playing to Trump’s political playbook. Research into political rhetoric during elections finds an incumbent will deploy a fear narrative, betting that voters will be crippled by fear and unable to change horses come election day. The challenger, meanwhile, will use anger to drive people to switch gears. During the pandemic, both of those emotions are deadly. Apart for the civil violence gripping the United States, the political and economic climate is leading to more and more mental health issues. A survey published by the medical journal JAMA Network Open found about half of all US adults experiencing some level of despair, about double the rate from two years ago.

“These findings suggest that there is a high burden of depression symptoms in the US associated with the COVID-19 pandemic and that this burden falls disproportionately on individuals who are already at increased risk,” the authors noted.

That does little to suggest the US climate will improve before a vote that’s almost certainly to be contested in November. Fear too is running deep in the current of international affairs, particularly as the restraints from the liberal world order break down. With no Hobbesian power holding the strings, adventurism is running hot. The UAE pivot toward Israel could led to heightened tensions in the Persian Gulf region as the alliance is seen as a bulwark against Iran. Given the influence of its proxy Hezbollah, that could in turn exacerbate an already dire situation in Lebanon. People are on the ground there are worried about the prospects of yet another civil war. Sensing an opening too, Turkey is eager to expand its influence deeper into the Mediterranean, though it’s butting up against European opposition. Officials in Cyprus said Friday that Turkish “aggressiveness” has created “extremely volatile” tensions in the region. France, working to assert its own dominance, is trying to calm the storm. Its flagship aircraft carrier, Charles de Gaulle, is on its way to the Mediterranean in response to Turkish claims in the region.