London Open: Euro Under Pressure As EU Council Fails To Deliver

The oil shock continues to buoy the USD albeit to a lesser degree, but for today's dollar demand we can chalk that up to a general risk malaise triggered by the EU council malfunction and a failed clinical trial of a high-profile anti-virus drug

Still, risk sentiment is holding up relatively well despite incredibly weak global PMI data over the past 24 hours that came in well below expectations in several cases. Suggesting that the USD could give way into the weekend

The combination of persistently low yields and rallying equities suggests investors expect central banks to remain in money printing mode as investors remain positioned fearless with central banks unhurried about shrinking balance sheets. If that expectation is correct, US credit spreads should tighten further, and stocks rally into the weekend.

Provided global inflation expectation remains muted, ASEAN bond markets have scope for further gain. The high yielders like the IDR and INR are well-positioned and with the BNM possibly moving the rate cut needle 100 bp lower post-MCO, the MYR could start to look well placed in this context

Although the Ringgit was dealt with an untimely blow via the extended MCO order this morning, with oil prices stabilizing, the MYR should hold its own into the close.

A disappointing end to the Eurogroup summit without agreement elicited only a modest selloff in EURUSD but we could see more fall out to come as Europe takes over the book and puts the boots to widening the BTP-Bund spread. But the ECB will backstop BTPs, and there is already a sizable euro short position, which will be at increased risk of being squeezed into the weekend

The Fed's swap lines were widely tapped in the last week. A total of $50.8 bn was drawn in the week of April 17-23 for an outstanding $432.3 bn. The ECB took $8.6 bn in the week; The BoJ took $24.5 bn, including a $19 bn single take. The Fed is to publish detailed information on participants and drawdowns from its crisis facilities. It said it would produce a monthly report with "substantial amounts of information" on the who and how much.

WTI Oil

The lack of volume in WTI oil markets is much about near contract technical mechanics is it is about "tank tops." Still, of course, this lacks the necessary touch of sensationalism associated with most of the "hot takes" on oil markets these days. With so many flaws related to trading NYMEX June deliverable WTI, the contract has devolved into a lousy bedfellow discounted proxy to the only game in town (Brent), as cross-asset correlations suggest the June WTI is soon to become irrelevant.

As expected, and propping up WTI today, U.S. Treasury Secretary Mnuchin said, he is looking at ways to support the U.S. oil industry. In an interview with Bloomberg, he said he is examining whether there could be a lending facility for the industry.

Distressed energy names caught a bid as crude prices again gained ground and the spread between the June and July narrowed.

But overall, I expect more demand-driven Bent crude moves to be the key driver of oil as global supply rapidly drops due to a combination of voluntary, forced, and compensated shut-in. This view has possibly put tonight's Baker Hughes rig count report on a more prominent pedestal than usual.

Thanks to the FT's Alphaville providing a useful educational backdrop for me to explain the influence of ETFs on the price action in oil of late. It is helpful not only because it is an excellent white paper to explain some of the market mechanics that hit oil (on top of storage factors), but also because it highlights the common misread of ETF data. Inflows to ETFs are often used as an expression of positive interest, but that misses that ETFs can be short instruments as well as long. Either by their structure (the XIV ETF a classic example) or through "create to lend" strategies.