Oil’s the main story this morning, with a collapse in the price because investors fear that storage is at capacity with nowhere else for it to go. The fall is being heavily driven by a futures contract expiry that takes place tomorrow and seemingly nobody wants to take delivery of the underlying product, this could well continue once this contract has rolled off and the June one comes into focus. These are normally the contracts that hedge the delivery of the start of the US driving season and a lot of the fuel hedges for the Northern Hemisphere’s summer travel plans and as such are very heavily traded. This move lower, if it does continue past this week, will almost certainly bring OPEC back to the table.

In Europe; the FT report that the ECB is apparently pushing for banks to be able to clear out their leftover toxic loans from the 2008 crisis to make room on their balance sheets for the wave of non-performing loans they’ll be stuck with following the coronavirus. The plan would be for the central bank to create a so called ‘bad bank’ which would buy the bad debt from the commercial banks, at a deeply discounted price, to free up the collateral being held against them. Bad banks were a thing following the financial crisis, but Brussels then tightened the rules and said that banks should impose losses on shareholders first before they get any kind of bailout – nothing like a pandemic to make bending the rules that bit more palatable – the plan now could be that the banks get to free up their balance sheets by selling the loans to the bad bank but are still on the hook for any future losses those loans generate: This would be a classic example of the EU kicking the can down the road.

It’s not just bad debt from loans that banks will be facing; credit card default rates are now at their highest for two years and is set to climb much higher. The number of defaults has doubled in the first quarter of this year, compared to the fourth quarter of last and could rise to as much as five times normal levels. The amount of outstanding debt on plastic is huge, with the US having just shy of $1 trillion dollars and the UK around £75bn – so on a per capita basis, you’d rather be a UK bank in this situation than a US one, with the US at almost twice the amount outstanding per person.

In European politics, it’s the same story different day: Italy are renewing calls for ‘coronabonds’ to be issued as they gear up for Thursday’s virtual EU summit. Their calls may continue to fall on deaf ears, though the amount of European coverage of Emmanuel Macron’s plea from late last week, that not unifying will be a long term death knell, has been widespread and there might even be a chance it’s made it onto the Sunday breakfast tables of various northern European leaders.

Germany is looking at offering more support for industries that won’t get a quick return to form once restrictions are lifted. Hospitality is the main area of focus, with hotels and restaurants expected to suffer longer lasting effects than other businesses that have reopened or are set to do so in the next couple of weeks.
This might have to be applied in the UK too, as according to the weekend press, these will be the last things to be opened once our own lockdown unwind begins. The traffic light scheme in the UK would see the ‘red phase’ implemented just past the May bank holiday, with small non-essential shops, hairdressers and nurseries reopening. Towards the end of May small businesses can get back to the office as well as schools (the amber phase) and then into the middle of June, assuming things have gone to plan with the red and amber phase, we can get back to the pub, the cinema and even the gym. Which seems like it’s almost round the corner, but that’s almost two months away and that’s assuming no problems along the way. The businesses left at the back end of this will have had 3 months of zero trade and then a likely very gradual rebuilding of their trade over summer, so additional support would be logical.

None of these plans have been confirmed by government, but they have been reported just about everywhere. Other reports from the weekend papers focus on the handling of the crisis by the government and some are heavily critical of the initial steps taken – especially as Boris wasn’t even present for the first five cobra meetings on the subject. The government is coming out swinging against the articles and actually issued a point by point rebuttal to the Times article entitled “Coronavirus: 38 days when Britain sleepwalked into a disaster”. There’s also a lot of talk in a lot of the papers about infighting within cabinet about the handling of the reopening, with a pretty even split of so called hawks, who would like to get things up and running ASAP and doves, who’d rather take things slower.

Looking at the week ahead; Thursday’s EU summit will be the one to watch, though probably a let-down.  Oil will be driven by comments out of any OPEC member nations and in the UK we will get a large dose of data to chew over; retail sales, expected 4% lower. Public sector net borrowing and unemployment data are also due out, but nobody is putting too much in the way of forecasts around either.

Lastly, Brexit talks resume today! We won’t speculate as to what the outcomes of these talks will be, but will be watching any news coverage we get from this – that news will probably come from the Europeans as presumably Boris will still insist on a media blackout on Brexit from this side of the channel.

Be well.