1. Commodities crash
- The 11-year bull run for the Dow Jones came to an end this week, officially falling into a bear market on Wednesday, shortly after the World Health Organization declared the coronavirus outbreak a global pandemic.
- “Both the real economy and the financial economy are exhibiting acute signs of stress,” Goldman Sachs said in the note.
- The Federal Reserve cut interest rates by 50 basis points last week and is under pressure to cut again immediately.
- “The Covid-19 pandemic is proving to be both a demand-side (with damage to travel, tourism, and any activities involving large crowds) and a supply-side shock (with major disruptions to supply chains),” IHS Markit wrote in a commentary. “It appears that the peak impact will not occur until late in Q2 or in Q3, thus IHS Markit assumes a U-shaped rather than a V-shaped cycle, with a sharp reduction in 2020 global growth.”
2. Saudi opens the spigots
- Saudi Arabia said it would begin producing at unprecedented levels, ramping up to over 12.3 mb/d, which is above what it is thought to be able to sustainably produce.
- The UAE followed by saying that it would ramp up to 4 mb/d, adding 1 mb/d. Russia said it could increase by 0.5 mb/d. The price war is on and the market is about to see a tidal wave of new supply.
- Riyadh may be trying to crash the market so fast, that perhaps a “shock and awe” strategy…