Crude oil lost 10% in October on demand fears from surging COVID-19 cases

Posted on October 30, 2020October 30, 2020 by Vrasidas Neofytou

Crude oil has lost more than 10% in October, sending WTI and Brent oil prices to a four-month low on growing concerns that the second wave of the pandemic will prompt renewed global lockdowns which will damage the demand and consumption for auto and aviation fuels.

Energy prices dipped to their lowest since June on Thursday, with WTI crude falling to $35 per barrel while the international benchmark Brent crude dropped to $36.50 per barrel. On Wednesday, the EIA inventory report showed a greater-than-expected inventory build of 4.3 mil barrels compared to estimates of 1.5 mil barrels, adding more pressure to the falling oil prices.

Another negative catalyst for oil prices was the rise of the US dollar to fresh monthly highs, making the dollar-denominated crude oil more expensive for holders of other currencies.

Monthly oil losses as coronavirus concerns weigh:

Oil suffers a second straight month of declines and it is on track for the biggest monthly slide since March as the global COVID-19 cases rose by a single-day record of 500.000 on Thursday and hospitalizations broke higher again. US new cases topped at 90.000 yesterday, setting a daily record, with New York, New Jersey, and the Midwest states becoming the epicenters of the pandemic.

With COVID-19 cases surging across Europe, France and Germany announced new nationwide lockdowns to curb the spread. France will require people to stay at home for all but essential activities from October 30^th, while Germany will shut bars, restaurants, and theatres from November 02 until the end of the month.

Oversupplied Market adds pressure on oil prices:

As lockdowns begin to bite on energy demand concerns across the US and Europe, the near-term supply outlook starts to deteriorate. Libya has started picking up oil production after the end of the deadly civil war last week. Libyan production is expected to reach 1 million barrels per day in November, almost double from levels earlier in October.

OPEC and its allies including Russia, plan on reducing production cuts on January 01 2021, from a current 7.7 million barrels per day (bpd) to about 5.7 million bpd. However, Saudi Arabia, the de facto leader of OPEC, and Russia are in favor of maintaining the group’s output reduction of about 7.7 million bpd currently into 2021 amid the perspectives for pandemic-related lower fuel demand and higher supply from Libya and US shale producers. OPEC+ is scheduled to hold a virtual policy meeting over Nov. 30 and Dec. 1 to discuss the current developments and decide for the production cuts.

US Elections and Petroleum industry:

Energy traders have started focusing on potential risks in the coming US election on November 03. In the case of a Biden administration, it will cause problems in the growing US Shale oil industry as Biden expressed many times to ban the Fracking drilling method which produces air and water pollution. Also, he will promote his “Green energy program” with more than $2 billion worth of investments in renewable energy technologies.

A weaker dollar is supportive for the world economy and equities

Posted on October 29, 2020December 10, 2020 by George Kessarios

Several weeks ago, I asked myself if the run in the EURUSD pair was an opportunity to go long the dollar, after the euro rallied the most over the past decade. My answer was no, because such a rally does not happen without a reason. Such a rally is a fundamental shift in the market, even if many times we don’t know why.

Over the past several months I have been following 2 data sets to try to figure out what the pair might do in the future, and so far I have not been disappointed.

The first is swap liquidity data as published by the St Louis Fed. We have made reference to this data many times over the past several months.

As you can see, the swap liquidity facility has almost unwounded. Again, like I have said in previous notes, this is dollar negative.

The other set of data is the net speculative EUR positions from The Commodity Futures Trading Commission’s weekly Commitments of Traders data. As you can see, net speculative positions are the highest in over a decade. In fact, they have ticked up a bit as of the last report.

Please note that a lower dollar is supportive for the US and the World economy. In fact, as long as the dollar is falling, it is a risk on for the global economy and of course for markets, primarily equities. So until we see data to the contrary, my conclusion is that the Euro will continue to go higher vs the dollar.

Turkish lira drops to record low against the US dollar and Euro

Posted on October 29, 2020 by Vrasidas Neofytou

The Turkish lira weakened to a record low of 8.32 against the US dollar and 9.77 against the Euro on Thursday morning, heading further into uncharted territories. The Lira lost more than 27% of its value in 2020 and almost 90% since the financial crisis of 2008 against major currencies and shows little sign of stabilising despite the efforts by its Central Bank to stop the fall.

The sell-off in Turkey’s currency was driven by a cocktail of worries such as the worsened inflation outlook, the unwillingness of Central Bank and President Erdogan to increase the key policy rates above inflation rates, the badly depleted FX reserves, poor macroeconomic fundamentals, ongoing geopolitical tensions in the Caucasus and the Eastern Mediterranean, deterioration of Turkey’s relations with Western allies and the prospect of economic sanctions under a possible Joe Biden presidency.

Central Bank and Inflation risks:

The USD/TRY broke above the symbolic level of 8 for the first time ever, adding additional inflation pressure, just after Turkey’s Central Bank kept unchanged its policy rate at 10.25% last week, saying significant tightening in financial conditions had already been achieved after steps to contain inflation risks.

The Turkish Central Bank has also raised its mid-point inflation forecast for end-2020 to 12.1% from 8.9% in its previous inflation report in September, while the bank forecasts that inflation will fall to 9.4% at the end of 2021, compared with a forecast of 6.2%.

The decision of the Central Bank to leave the key rate at 10.25% has disappointed investors who had expected a big interest rate hike of 175 basis points to support the falling lira. Investors were expecting more monetary tightening after the surprised 200 basis points rate hike in September (first rate hike after 2018) to control Turkey’s chronically high inflation.

President Erdogan had long called for interest rates to be lowered, describing them as the “mother and father of all evil”, raising the concerns about the Central Bank’s independence and fears over presidential control on monetary and economic policies. Erdogan fired the previous central bank chief Murat Cetinkaya in 2019, who resisted the president’s growth-at-all-costs policy and low-interest rates.

The current key policy rate of 10.25% remains below the annual consumer price inflation, which stood at 11.75% in September, leaving real rates negative for the lira. This development forces Turkey’s lira depositors to sell their currency for the more stable US dollar, Euro, or Gold, adding more pressure to the lira.

Turkish retail and government banks have spent more than $135 billion over the past 2 years to support the falling lira in the open market, worsening the country’s foreign currency reserves. Moody’s Analytics has warned that Turkey has almost depleted the buffers that would allow it to stave off a potential balance-of-payments crisis.

Geopolitical Tensions:

The growing geopolitical tensions have further depreciated the lira and weakened the country’s economic conditions. President Recep Tayyip Erdogan has recently opened personal disputes with France’s president Emmanuel Macron in response to some controversial comments about Islam. Furthermore, France recalled its ambassador to Ankara after Mr. Erdogan said that Emmanuel Macron needed mental treatment and called Turks to boycott French goods.

The investment sentiment about Turkey’s lira deteriorated after European Council President Charles Michel accused Turkey of resorting to provocations, unilateral actions in the Eastern Mediterranean, and Caucasus and insultations against European leaders.

Turkey has been accused of its role in the re-eruption of fighting in the disputed Caucasus region of Nagorno-Karabakh between Azerbaijan and Armenia. Furthermore, it has an ongoing dispute with Greece and Cyprus over maritime rights and ownership of natural resources while it has supplied weapons and soldiers to support its proxy groups into Libyan and Syrian civil wars.

US elections add pressure on Turkey’s lira:

The relation between Turkey and the USA has deteriorated after Turkey had started testing a Russian-made S-400 air defense system, while it also antagonizes the US in the Middle East and the Mediterranean Sea with its aggressive foreign policy. The Turkish lira slid further this week after President Erdogan challenged the United States to slap sanctions over his government’s decision to test the S-400 missiles.

Forex traders fear that a win for the Democratic candidate Joe Biden in the US presidential election of November 03, could increase the likelihood of economic sanctions against Turkey. Joe Biden has recently referred to President Erdogan as an autocrat and stated he was in favor of supporting political opponents to defeat him in elections.

Investors believe that a Biden administration would work with European allies to impose extra aggressive sanctions against Turkey into 2021. The last time the US imposed sanctions against Turkey was in 2018 when Turkey imprisoned U.S. pastor Andrew Brunson on terrorism charges, sparking a currency crisis for the lira that led to a deep recession in the Turkish economy.

Turkish Economy:

Turkey’s economy contracted nearly 10% in the second quarter of 2020 as it was significantly affected by the coronavirus pandemic and measures to combat it. The local retail market was hit hard from the lower consumption combined with the Lira’s depreciation and higher inflation rates. In addition, the lira sell-off comes as Turkey earns fewer dollars and euros due to a massive drop in tourism and slumping exports amid the virus pandemic.

Given the ongoing uncertainties around the economy, the pandemic, and geopolitical tensions, Fitch ratings expect the Turkish economy to remain volatile, forecasting the GDP to contract by 3.2% in 2020, but grow more than 5.0% in 2021.

Rating houses downgrade Turkish companies:

Many rating houses have already started downgrading the outlook for the Turkish companies amid the depreciation of the Turkish lira, the fragile local economy, and the weak corporate revenues from the effects of the Covid-19 pandemic.

The downgrades reflect mainly the material foreign currency risk as most of the Turkish companies have large debts denominated in US dollars (loans) or Euros (Eurobonds), but their corporate revenues are in Turkish lira. The heightened FX exposure has weakened the credit metrics of the companies while some of them have already been facing difficulties to meet their debt obligations.

Exclusive Capital donates face masks to Cyprus Fire Service

Posted on October 27, 2020December 28, 2023 by Exclusive Capital Team

As an initiative to support the community and help to protect local firefighters during the Covid-19 outbreak, Exclusive Capital has donated fabric face masks to the Cyprus Fire Service.

Exclusive Capital’s Managing Director Lambros Lambrou mentions: “With the ongoing spread of the COVID-19, providing support to our front line workers is an essential part of Exclusive Capital’s contribution to the local community, and we are grateful to those who serve and protect us day by day.”

Exclusive Capital’s management team proud to be featured in the “Game Changers Magazine”

Posted on October 22, 2020October 26, 2020 by Exclusive Capital Research Team

Exclusive Capital’s CEO Viktor Madarasz and Managing Director Lambros Lambrou are delighted to be featured in the latest issue of the “Game Changers Magazine” – the digital magazine for financial industry professionals.

Among various industry-related topics, Game Changers’ latest edition focuses on the recently announced “Global Forex Awards 2020” winners, and we are pleased to be a part of it.

For Exclusive Capital the winning of the title “Best ECN Forex Broker – Global 2020” was an important milestone of the company’s recognition in the industry, and it gives us the motivation to continue our efforts towards the best possible service to our clients.

Airlines in crisis: The impact of COVID-19 pandemic

Posted on October 19, 2020October 20, 2020 by Vrasidas Neofytou

The unpresented hard landing in the global aviation industry demonstrates the significant impact and magnitude of the COVID-19 pandemic in the entire airline space. According to official travel data, more than 40 commercial airlines have already bankrupted or suspended their operations in 2020 so far, failing to survive the worst financial crisis in aviation history.

The next few months will be rocky for the airlines as coronavirus cases have risen in the U.S. and Europe at their highest level since summer. Many countries have already reinstated tougher social distancing rules and rolled back previews re-opening measures to curb the spread of the virus, creating a negative dynamic for the aviation industry once again.

Stock performance:

The shares of some major US carriers such as Delta Air Lines (DAL), United Airlines (UAL), and American Airlines (AAL) have lost more than 50% of their market value this year so far, contrasting with gains of 50% for the tech-related Nasdaq 100 Composite and 10% for the S&P 500 index.

Delta Air Lines and United Airlines delivered misses on third quarter-Q3 revenues that dropped at least 75% year-over-year, which was largely reliable with the drop in airport traffic observed during summer, low passenger revenues, and large operating costs.

Government support:

Governments around the world have minimized the damage in the aviation industry by supporting the carriers from going bankrupt during the first months of the pandemic. The industry’s revenues had been hit so hard from the pandemic-related lockdowns and the travel restrictions, that governments had no option but to support the carriers with billions of dollars to avoid layoffs.

The official authorities together have provided more than $150 billion in support, including direct aid, wage subsidies, corporate tax relief, and specific industry tax relief including fuel taxes. Thankfully for airlines, the financial aid does not add more debt to their balance sheets.

The US administration is planning to provide a new $25 billion bailout for U.S. passenger airlines to keep tens of thousands of workers on the job for another six months. The new financial aid will extend the prior $25 billion airline payroll support program of mostly cash grants approved by Congress in March, which it expired on Sept. 30.

American Airlines and United Airlines began laying off 32,000 workers at the end of September but had said they would change course if Congress reaches a deal on a new government program to fund payroll costs.

Furthermore, carriers have applied cost-cutting measures by parking thousands of aircrafts, canceling non-profitable routes, and laying off thousands of employees. Worth mentioning that many airlines were already struggling before the pandemic hit, but they now being in a better position because of government help.

Relaunch Boeing 737 Max flights in December:

Airlines are planning to return Boeing 737 MAX passenger jets back to service at the end of the year, provided they are certified by the U.S. Federal Aviation Administration.

At the beginning of October, the European regulators cleared 737 MAX’s return back to the skies, saying, safety changes Boeing made were satisfactory.

This is a very important development for the aviation industry after the two deadly 737 MAX crashes killing 346 people in a span of two years in Indonesia and Ethiopia. A congressional report pinned the blame for the fatalities on both Boeing and the FAA.

Outlook for next quarters:

Many analysts have downgraded the outlook for the airline’s stocks to negative as the short-term risk has increased due to the resurgence of covid-19 cases around the world together with the application of fresh lockdown measures and travel restrictions.

With demand recovery in most regions stalled and airlines still struggling with revenue generation and high cash burn rates, the market analysts expect to see more pressure in the final quarter of 2020 and the first quarter of 2021 at least. Carriers are expected to have Q4 2020 revenues only at 1/3 compared to Q4 2019, in response to the strict cleaning protocols, middle-seat blocking policy, and weak air travel demand.

The International Air Transport Association (IATA) expects that the passenger traffic is likely to return to pre-pandemic levels only in 2024, a year later than previously projected and some capacity may be lost for longer.

The year 2020 was a “lost year” for the airlines, and their focus is to minimize their operational costs, to apply budget-constraint measures which will improve their cash flow metrics until rebound will be reflected in air traffic following the distribution of an effective vaccine within 2021.