Global Markets Podcasts

It’s easy (and accurate) to present the 2021 oil price outlook as a V-shaped vaccine trade. What is striking about the forward oil outlook is the apparent degree of unanimity (or at least strong consensus). Indeed, the oil market appears to be singing from the same bullish 2021 hymn sheet. What is striking about the forward oil outlook is the apparent degree of unanimity (or at least strong consensus) as we embark on a new year.

Ehsan Khoman, Head of MENA Research and Strategy, offers his insights into MUFG’s oil price outlook and his thesis as to why we are not only resolutely constructive on oil prices in 2021, but in fact above consensus, forecasting Brent and WTI to average USD58/b and USD54/b, respectively in 2021, and ending the year at USD64/b and USD61/b, respectively, with upside risks to our forecasts.

On December 18, Bank of Japan Governor Haruhiko Kuroda announced that the central bank had agreed to extend pandemic response measures and will assess monetary policy, with results to be announced at the March Policy Board meeting. On December 21, Prime Minister Yoshihide Suga’s expanded JPY106 trillion budget was passed, and an increase in JGB issuances was approved. At this time, JPY rates basis and USDJPY are steady, ahead of the end of the 2020 calendar year.

In today’s episode, MUFG Chief Japan Strategist, Takahiro Sekido, shares his thoughts on the BoJ’s monetary policy assessment, the Suga Administration’s FY21 JGB issuance plans, the BoJ’s USD fund buying from the MoF, and cross-border flows. He also goes through his outlook for Yen rate, cross-currency basis, and Dollar / Yen.

‘Uncertainty’ is the key theme for this week. After a huge run up in risk across global markets, a new variant of COVID-19 is bringing a number of questions, such as will the tier 4 restrictions currently placed on London and the South East of England spread to the rest of the UK? How will Europe shield itself? Are there implications for the vaccine?

Derek Halpenny, Head of Research for Global Markets EMEA and International Securities, gives us his insights into how this news has been priced into the market and his view for the week ahead.

Many in the oil industry are glad to see the back of what has truly been a whipsaw year. Uncertain IMO 2020 regulations. Heightened geopolitical risk premium. The once-in-a-lifetime, unparalleled COVID-19 pandemic spread collapsing demand. An all-out oil price war amongst Saudi Arabia and Russia to gain market share by flooding the world with oil supplies. Draconian lockdowns sending prices into freefall.  A historic OPEC+ phased production agreement of 9.7m b/d (~10% of global supply) to reverse course and support prices over defending market share. Finally, the dizzying risk-on momentum from the euphoria over vaccine efficacy.

Ehsan Khoman, Head of MENA Research and Strategy, contextualises the key themes that shaped global oil markets in 2020 and offers insights into how the tumultuous developments over the course of the last twelve months could have long-lasting implications as we begin to form new contours of normality towards a post-virus equilibrium.

Chair Powell put it quite succinctly in the Q&A portion of the FOMC’s Press Conference to the December 15-16 Meeting, “The combination of the Cares Act and the strong monetary policy stimulus propelled a recovery that was, frankly, far stronger than we expected back in April, May, and June.” In this much anticipated FOMC Meeting, Chair Powell covered so much ground, and in this podcast, MUFG U.S. Rates Strategist, John Herrmann, attempts to bring it all to life. 

First, over the very uncertain path of the Fed’s monthly Treasury security purchases, the Committee concluded that neither the pace (at $80.0 billion per month) nor the composition (proportionately across the yield curve) would change – matching our forecasts. Second, of the important forward guidance over the “horizon” of asset purchases, the Committee introduced “qualitative outcome-based forward guidance” that matched our predictions. Third, Chair Powell acknowledged that the coming three-four-five-months would be quite challenging – with the pandemic raging – but the growth rebound that follows would be a strong one, he believes.

Chair Powell strengthened the Committee’s projection for GDP growth over years 2021 and 2022, while lowering the projection for the unemployment rate. The Committee’s projections are not nearly as optimistic as our models forecasts, but Chair Powell is closing the gap, and catching up quickly. We commend the Chair and his Committee upon their excellent and thorough hard work in this most difficult of a year!

The Suga Administration unveiled additional economic stimulus is huge, including JPY73.6 trillion in total projects and JPY40 trillion in fiscal spending. Interestingly, the JGB market has taken all that issuance in stride, even last week’s 20Yr auction. USDJPY has stayed in a narrow range and JPY basis is tight. Tokyo market trading at year’s end has been quiet, but there is a slew of market events, including the release of the third supplementary budget on December 15, the BoJ’s meeting on December 17-18, and the Ministry of Finance’s release of FY21 JGB issuance plans on December 21, for investors to navigate before the calendar year’s end.

In today’s episode, MUFG Chief Japan Strategist, Takahiro Sekido, discusses JGB trends in light of Prime Minister Suga’s additional economic stimulus measures and the third supplementary budget, as well as takeaways from the December Tankan survey. He also reviews recent cross-border flows and shares his outlook for Dollar / Yen, cross-currency basis, and Yen rate.

The market is getting increasingly pessimistic over no-deal Brexit fears and what that could mean for the UK economy. Reports this morning are suggesting positive developments over the weekend, however, with vows to “go the extra mile” to get a deal reached.

Will this be enough to stave off elevated risk for GBP? Lee Hardman, currency analyst, looks at outlook for the pound amid continued Brexit chaos and his forecast for the upcoming Fed meeting this week.

The precipitous decline in oil prices this year has led GCC authorities to drawdown on FX reserves, renewing apprehensions surrounding the sustainability of US dollar pegs in the region.

Ehsan Khoman, Head of MENA Research and Strategy, believes that the willingness and capability of GCC policymakers to safeguard US dollar pegs remains intact. He argues that the US dollar pegs serve as an appropriate policy framework and a credible anchor in providing a stabilisation mechanism for inflation and output growth. Given the existing structure of the GCC economies as hydrocarbon exporters – the price of which is in US dollar denominated receipts – a devaluation would have limited impact on GCC export competitiveness, which would quickly be eroded by the higher cost of imports and with it higher inflation.

The precipitous decline in oil prices this year has led GCC authorities to drawdown on FX reserves, renewing apprehensions surrounding the sustainability of US dollar pegs in the region.

Ehsan Khoman, Head of MENA Research and Strategy, believes that the willingness and capability of GCC policymakers to safeguard US dollar pegs remains intact. He argues that the US dollar pegs serve as an appropriate policy framework and a credible anchor in providing a stabilisation mechanism for inflation and output growth. Given the existing structure of the GCC economies as hydrocarbon exporters – the price of which is in US dollar denominated receipts – a devaluation would have limited impact on GCC export competitiveness, which would quickly be eroded by the higher cost of imports and with it higher inflation.

Over the past 8 months, it has been ironic to watch Chair Powell strengthen his economic growth and employment tracking projections, while he doubles down upon his view over the downside risks to the outlook and of the need to enact greater fiscal and monetary policy measures over the near-term. The latest news on the roll-out and effectiveness of COVID-19 vaccines suggests upside risks to the dour outlook over the medium-term.

In this episode, MUFG U.S. Rates Strategist, John Herrmann, previews the December FOMC meeting. John expects the FOMC to strengthen its GDP growth estimates and to lower its unemployment projections. He also thinks there is a decent chance that Chair Powell convinces the Committee to extend the duration of its Treasury security purchases and/or increase its monthly pace of Treasury purchases. These actions would support the economy in the face of current COVID-19 strains and also serve to restrain the extent of the sell-off in the back-end of the yield curve as the economy moves into many consecutive quarters of strong economic growth starting in Q2 2021.