Wrap

Significant global economic uncertainties in the coming months made OPEC cut on Monday its estimate of global oil demand growth for this year and next, in the fifth reduction of consumption forecasts since April.

OPEC revised down each of its 2022 and 2023 oil demand growth forecasts by 100,000 barrels per day (bpd) from last month’s estimates due to China’s still-strict Covid policy and economic challenges in Europe, the organization said in its Monthly Oil Market Report (MOMR) out on Monday.

China, and specificially China’s Zero-Covid policy, is the culprit. Xi is mad, but at least he’s making oil cheaper for the rest of the world. WTI Crude futures were down 4% today, presumably because of this report.

Equities were mixed, but — like oil — were penalized by a stronger dollar, which itself was linked to slightly higher rates. A Fed Governor (Waller) made a speech saying that there was some way to go before the FOMC could ease up on rate hikes.

UK Autumn Statement

The UK Chancellor of the Exchequer will announce his autumn statement (which is a budget in all but name) on Thursday. It has been heavily trailed, and there are going to be a lot of tax rises and a lot of spending cuts. I’ve seen figures like £55 B. The goal is to get rates at the long end down, and thereby reduce the cost of financing with gilts. I guess it’s to get inflation down too, so index-linked gilts will provide cheaper funding. The problem is that cutting the government’s funding cost is the same as pumping up asset prices. You can’t separate the two. With the world borrowing something of the order of $310T, this debt simply is never going to be paid back. The Bank of England could be arm-twisted into cranking up QE and doing yield-curve control. They wouldn’t like it, but we are still in an emergency situation, as far as I’m concerned, and this would be the lesser of two evils. The further redistribution of wealth to the very rich is going to cause a political crisis. I am not sure whether Jeremy Hunt is a bootlegger or a Baptist: probably he’s a bit of both, but the failure to even discuss the redistributional consequences of what is being called Austerity 2.0 is appalling.

I know that a lot of this $310T of debt is notionally in the private sector, but we all know when there is a systemic collapse of debt in the private sector, as there was in 2008, governments invariably bail out the private sector, for understandable reasons (I concede, reluctantly). My rough reckoning is that this debt burden amounts to about four years of global GDP. Most individuals cannot devote more than a few percent of their income to debt service and repayment. Logically, this must be true in aggregate.

Image

@raylivez1 on Twitter.