Oil Shakes off COVID-19 Resurgence Concerns, Closing Higher for the Week

Last week the week began with news of a second wave in {CH} Beijing and lack of containment in some {US} US states. As the week progressed the situation in Beijing seemed to be contained while in the US there yet seems to be signs of containment. At the same time, oil shrugged off second wave fears and traded up for the week with {7I} WTI and Brent notching 9.62% and 8.99% week on week returns respectively. The equity markets had a volatile week of gains and losses but still managed to end the week positively.

Markets remain vulnerable in the wake of these second wave fears where the focus is predominantly in the States where California reports record new and Florida infections jumped more than the weekly average. However, most analysts feel that even if there is some consolidation it will be a bump on an upward trending curve.

Important data for this week will be the PMU date in Europe and the US where we should observe improving figures given that the underlying timeframe includes the time when the lockdown measures were lifted. On Thursday we have the ECB minutes released which should be dovish given they will cover the meeting where the ECB overdelivered on the PEPP measures. We have bonds issuances from Germany, Holland, Belgium, UK and Italy and a large supply from the US in the belly of the curve. There is a possibility that Portugal could use this week given that no auction was announced this week.

In the EM space one big mover last week was Zambia where the curve traded up 10 pts to 50 handle with the yield on the 27s dropping to 23% from 27%. Zambia was the first African nation to announce a restructuring of its debt but unlike the rest of the African countries that are already in IMF programs Zambia has been flirting with the concept but never really underwent proper implementation of narrowing its debt to a sustainable level as per the request of the IMF. Lazard which is also handling the Argentinian bond negotiations was hired to handle Zambia’s restructuring. As the set up is now finally official, news of discussions with China on its debt relief are gaining more validity than previously and raising probabilities that the IMF may finally become engaged. Zambia will likely restructure all its external debt including its Eurobonds unlike the rest of the SSA which are for now just negotiating their multilateral facilities. Analysts believe that Zambia is closer now than any other time in the past 3 years to getting an IMF deal. The big question in what is the likely recovery rate to make the risk reward ratio opportune.