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Oil and North Korea keep investors on edge

21 April 2020

UK average earnings slowed further to +2.8% in February, compared to +3.1% over the previous three months and a +3.4% print this time last year. UK unemployment rose slightly to the end of February from 3.9% to 4%. Not too much can be read into the data points, which are all pre-Covid-19 lockdown numbers and do not reflect the ongoing collapse in economic activity we have seen since the start of March.

The bigger news the markets are looking at is the health of the North Korean dictator Kim Jong Un who, according to reports, is seriously ill following heart surgery. Succession planning in the “hermit kingdom” is a family affair and no one seems to know who his successor could be. That leads to uncertainty which leads to risk off – sometimes it is a case of better the devil you know.

Separately, the oil price conundrum continues. West Texas Intermediate (WTI) crude for May delivery declined to USD -37 a barrel momentarily on 20 April while futures prices for June held around USD 20. Usually, the spread is just the storage cost, but as there is less and less storage capacity, sellers are now paying buyers to take the black stuff off their hands. This is a ridiculous indictment of the overproduction currently in effect and it seems the situation will not improve anytime soon. The worry for markets is that there may be some heavy losses building due to this absurd oil price action and, as yet, we have not seen any dead fish (hopefully not a larger whale) surface.

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