23 April 2020
As everybody is patently aware at this point; so far 2020 has been a year like no other in living memory.
The current COVID-19 attack is the most recent sledgehammer to hit the global economy this year meaning that we have witnessed a number of contentious financial and market records.
Economics may not be everyone’s speciality or interest! So I aim to share some insights on a monthly basis to bring finance into focus at a macro and micro level impact on our professional and personal lives.
This month let’s look at oil, the currency markets and business innovation in a crisis.
Currency Markets: How much is a burger now?
The global foreign exchange (FX) markets have seen a lot of volatile activity in recent months. In March 2020 GBP fell against USD to lows of $1.15 – down from around $1.33 in March 2019 and $1.66 in 2014.
In more straightforward terms this would mean that someone from the UK visiting the US and buying a $5 burger would be spending the equivalent of £4.35 instead of around £3 just a few years ago – a 45% increase in equivalent cost. It had better be a good burger!
Shifts such as this can significantly influence certain markets’ desire or ability to travel when borders start to reopen. FX markets did stabilise more in recent days however global industry and travel companies in particular continue to keep a very close eye on these key indices.
Oil: What do oil prices mean and why are they important?
Oil has a greater effect on global economies than almost any other traded commodity and like the currency markets, has experienced a volatile period. Oil products underpin modern society; mainly supplying energy to power industry, heat homes and provide fuel for vehicles and aeroplanes to carry goods and people all over the world.
A benchmark crude is a crude oil that serves as a reference price for buyers and sellers. There are three primary benchmarks: Brent Blend, West Texas Intermediate (WTI) and Dubai Crude.
On Monday, for the first time ever, WTI – the US oil benchmark – was fetching $1.43 a barrel after opening at -$14, meaning that producers were paying buyers to take oil off their hands given limited access to storage in the US. At one point producers were paying more than $40 a barrel to get rid of their oil, dropping from an $18.27 selling price on Friday and down from over $100 in 2014.
It is the clearest sign yet that the coronavirus pandemic, which has cut oil demand by up to a third worldwide, has turned the US oil market on its head.
Innovation & Resilience: Some significant glimmers of positivity.
There have been however some extremely reassuring approaches and behaviours seen across the globe with some companies and industries pulling together to support as best they can.
Some of these I’m sure will have been seen already but hopefully there are others that are new to you…