US Open – 1 out of 16 Americans have recently filed jobless claims, Oil rises on supply optimism, Gold demand returns, Colombia nears junk rating

Weekly Jobless claims, the best indicator as to what is happening in the labor market topped last week’s record with a whopping 6.648 million in new claims.  The economy is in bad shape and doubts are growing that the recent fiscal rescue package to help businesses might not be enough to keep people on their payroll.  It is unfortunate how bad these numbers are getting, and no one will be surprised if we see a few more terrible readings over the next few weeks.  America needs the economy to reopen, but not at the cost of lives. 

Risk aversion will likely be the theme of the day as today’s jobless claims data highlights how fast American households are getting hit.  The dollar softened after the record US weekly jobless claims reading. 

Oil

Oil prices are rising on optimism that the market share feud between the Saudis and Russians will be ending soon and after China’s strategic stockpiling announcement.  China will take advantage of the  current low oil prices and fill up their reserves in what will be a move that equates to only 1 million bpd in demand. 

Oil is a tangible asset and prices could continue to rally as global storage tanks near capacity thus forcing producers to stop output.  One of the world’s largest storage hubs in South Africa is nearly at capacity.  This will be a recurring story as storage terminals all over the world will be filled up over the next couple of months. 

President Trump will meet with top oil executives from Exxon and Chevron on Friday in what should be a key meeting that finalizes his strategy to get Saudi Arabia on board in ending their price war Russia. 

Any oil rally will be met with much skepticism as no one knows how long much of the world will see travel and trade remain at a standstill.  With some type of social distancing measures in place over 90% of the world, the demand destruction is likely to persist for at least a couple more months.  Any breakthrough with oil’s supply side could provide a much needed rebound for oil. 

Oil pared some of its gains following the record surge in weekly jobless claims.   

Gold

Gold is climbing higher after a fresh record surge in weekly US jobless claims reminds investors the American economy is entering a very bad place.  Over the past two weeks, one out of every sixteen Americans have filed for unemployment benefits.  Until the US has the virus under control, social distancing measures will remain in place and that could last beyond May. 

Gold ETF purchases rose to fresh record and that should remain the case if the dollar continues to soften.  Gold should continue to rise as the US economy is headed for a sharp recession that will be supported by a very aggressive Fed.

Colombia

Colombia’s sovereign credit rating is barely above junk after Fitch cut its rating to BBB- on a loss of fiscal credibility.  President Ivan Duque’s accounting creativity helped Colombia reach their deficit limits, but that is not fooling the rating agencies.  S&P also has Colombia at BBB- and the pressure will fall on the government to cleanly reach their deficit targets. 

Colombia still has one of the best outlooks for LATAM, but the risk at getting downgraded to junk is growing and that could scare away a lot of foreign investors. 

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