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Collinson FX: March 23, 2020 - Govts trying to get ahead of the curve

by Collinson FX 22 Mar 22:11 GMT 20 March 2020
Leda - Mahurangi Regatta - Classic yachts - January 2020 - Mauhrangi Harbour © Richard Gladwell /

Collinson FX: March 23, 2020 - Saudi's ramp up oil production to kill market

Market chaos continues to track the epidemic devastating Europe and spreading to North America and Australasia. This infection, on a massive scale, has infected markets injecting fear and anxiety. The lack of measurable impact of the virus on the economy, has generated severe uncertainty, which is the arch-enemy of markets. Experts have extrapolated the Asian experience, to speculate that the peak infection rate will be hitting Europe, in the next week or so. The roadmap then predicts the US and Australasia to follow, in a similar time frame. The positive are that the USA and Australasia are following and can therefore act on the Asian/European experience and utilize the most effective containment techniques.

Europe is closing its doors, with travel bans, both external and internal, while 'shuttering' non-essential business. Governments are frantically trying to get ahead of the curve, launching unprecedented and massive bailout/support packages. This extreme fiscal stimulus is in combination and coordination with the Central bank emergency actions. Globally Central Banks have cut interest rates to zero effectively, exhausting that monetary tool, leaving only enormous QE measures to buy up debt. Central banks have been monetising public and private debt, in an effort to ensure liquidity does not become an issue, avoiding the dreaded 'credit squeeze'.

Commodity demand has fallen, while Oil has literally collapsed, with a cleverly executed plan by the Saudi's to take advantage of the economic crises. The Saudi's have decided to ramp up production of oil, in the face of demand falling off a cliff, to destroy the competing oil producers and reassert dominance in the market. It is a timely and Machiavellian plan which appears to be working!? This has added to the chaos on global markets, as the energy sector is crushed, reflected in the share price on global bourses. Governments will need to act quickly to support small business and the individual, if they wish to maintain business for the anticipated rebound and consumer demand. Corporate bailouts for Airlines, Hotels etc will be far less popular.

The market turmoil cannot be addressed until the coronavirus is contained. There is massive progress on vaccinations and cures, but we are not there yet, so it is all about control and triage. Markets will calm and roar back, when the expected storm passes through Europe and the US. The US Dollar remains the global safe haven currency and this has been reflected in the currency markets. The GBP has stabilised after a massive onslaught (trading 1.1600), while the EUR has succumbed, after early resilience (to fall back to 1.1650).

The trade exposed commodity currencies have been absolutely smashed, with the AUD falling below 0.5600 during the week, while the NZD plunged below 0.5500. Massive volatility and uncertainty has allowed a rebound, with the AUD back to 0.5800, while the NZD attempts to regain 0.5700. These commodity currencies remain extremely vulnerable to the epidemic crises and are way behind the curve. The problem is the Coronavirus Tsunami is on the horizon and there is no dodging the bullet, but the learned experience from current crises management in Asia and Europe provide, a blueprint to follow.

S-W: Leda was one of the boats that kindled many of the baby-boomers' interest in sailing - her construction was detailed in a series published in the "School Journals" which were handed out in class as reading material - later we switched to reading Sea Spray and any other sailing magazine we could find. Plus my father had started building our first boat when I was eight - so it was interesting to view the yacht building process from another perspective, and realise that the glue didn't have to run everywhere (my father was the world's messiest gluer), and remember the long hours spent in a cold shed with the noise of a saw, hammering, holding a dolly on the inside of the hull, and sanding off excess glue (after it had dried of course). But for me it all began with Leda. RG

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