The Day at a Glance | April 20 2020

Oil prices reach lowest level in 21 years

Oil prices collapsed early last week due to low demand, growing inventories and insufficient storage facilities. The greater impact is regarding its American reference price, the West Texas Intermediate, which is set this morning at $11 dpb (-38.53%), 6 dollars under last week`s closing price. The adjustment responds to the approaching expiration of futures contracts (this Tuesday) for the month of May, as well as a substantial increase in the use of storage facilities in Cushing, Oklahoma, a key storage center in the US. Inventories in Oklahoma have increased up to 48% since February, reaching up to 55 million barrels and has a limit of 76 million barrels, according to the US Energy Information Administration. Other reference prices such as the Brent ($26.2 dpb, -6.23%), and Mexican oil ($14.17, -0.42%) show more moderate adjustments, which reflects the surplus of oil is concentrated in North America.

Details concerning a new US stimulus are refined

With US Congress resuming sessions today, the details concerning a new fiscal stimulus package are being refined in order to help businesses and unemployed people due to the pandemic. An agreement to inject greater resources to the PPP could be approved today. A $300 billion dollar increase is estimated concerning credit available to small enterprises and up to 50 billion in disaster loans. It`s also expected to include up to $75 billion for hospitals and $25 billion for a program that will allow extending COVID-19 testing. The new resources appear in midst of small businesses facing tight funding constraints, with the larger part of resources going towards the aid of larger corporations. Direct deposits to people have been made. New protests have come up in some states demanding the economy`s prompt reopening and the end of a quarantine that “reduces individual freedom”, and have been supported by President Trump. The protests have become a focus for instability, as many of their members are armed, and some have even blocked cars from getting to health centers.

China cuts interest rates

For a second time this year, the People`s Bank of China decided to cut interest rates to reduce borrowing costs for companies, after the first contraction in the economy in decades. The LPR was reduced to 3.85% (-20 bps), as the 5 year LPR was set at 4.65% (vs 4.75% prev.). The greater part of loans to enterprises are based on the 1 year LPR, while the 5 year LPR works as a base for mortgage loans. This is in line with market and analysts` expectations, but is still moderate (compared to what happens in the West), which suggests that authorities maintain a cautious position concerning monetary stimuli in midst of an over-indebtedness problem that cannot be ignored. After the contraction recorded in the 1Q20, authorities have gradually reduced their growth projections` relevance for this year and concentrate more on reviving activities without increasing the financial system`s vulnerability.