The Day at a Glance | April 8 2020

No agreement reached in Europe regarding fiscal package

The Finance Ministers of European Union country members met yesterday in an unsuccessful attempt to define a coordinated fiscal stimulus package in order to back the economy in light of COVID-19. The main point of cause of disagreement concerns the proposed bond issuance backed by the block`s economy, a proposal backed by countries like Italy and Spain to have access to more capital at a lower cost, but rejected by countries with a long history of fiscal discipline. Frictions recall those lived during the sovereign debt crisis and some countries` aversion to rescue the union`s countries that have not been fiscally responsible. At the moment, the discussions have been postponed to next Thursday. The EU has suspended its fiscal rules in order for member countries to take on further debt and increase their fiscal deficits above 3% of GDP, but some consider its necessary to do more. France, Italy and Spain propose greater cooperation not only regarding the issuance of bonds backed by the EU, but also the possible creation of a rescue fund that would grant lines of credit of up to 2% of their GDP. Discussions have not been able to reach agreements in trying to define criteria that would allow countries to have access to these credits. The EU discusses various alternatives, as it needs to guarantee resources that allows broadening lines of credit in order to back businesses and obtain supplies and medical equipment necessary to tackle the health crisis. It`s feared that a lack of agreement will further fracture the European integration project, as did the lack of agreements in 2014-2015 that led to Brexit.

White House prepares plan to resume economic activity

Recent reports suggest that The White House has started to prepare a plan in order to economically reactivate regions in the country despite the number of confirmed new cases is still on the rise. The reactivation process and going back to normality would start in small towns with low risks of contagion, while large cities such as New York, New Orleans and Detroit would remain closed. The plan is still only being designed, but President Trump and his economic advisor Larry Kudlow, have again brought up the need to reactivate the economy as soon as possible. The plan`s viability would depend on an ambitious COVID-19 testing program that would allow knowing with certainty the level of risk in different regions in the country. However, most mitigation efforts and treating the sick have been led by state governments and not by the federal government, which raises doubts concerning their alignment once the President requests returning to normal.

OPEC+ will have a meeting tomorrow

The long-awaited meeting between petroleum exporting countries will take place tomorrow with the intention of avoiding a further fall in oil prices and give the global economy`s important industry some breathing space. Recent reports suggest that the size of production cuts are still being discussed, however, Russia and Saudi Arabia show intentions of reaching an agreement. Nevertheless, the US`s part in the matter is still unclear, which is something Russia has considered essential in committing to carry out production cuts. In case an agreement is reached involving cuts close or above 10 mdb (figure that markets have estimated as the minimum necessary to try to balance the market), oil prices could reach close to $35 dollars per barrel (WTI) in the short-run; however, the absence of an agreement could threaten taking prices under $20 dpb for a prolonged period of time. Data from the American Petroleum Institute show that crude oil inventories increased in 11.9M barrels last week, while gasoline inventories increased in 9.45M barrels; this suggests that demand for crude oil has sharply decelerated in recent weeks and that OPEC+ will have to respond forcefully.