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T_Four weeks into the oil price collapse, US President Donald Trump has hinted at an imminent production cut among OPEC+ members, but we remain skeptical much will change before later this spring. T_In our opinion, we have yet to see the full extent of the ramifications of this macro shock on the global economy, financial markets and geopolitics. T_In the short term, downside risks apply to oil prices and emerging market (EM) bonds.
T_Global Macro
T_Notably, this is an unprecedented oil price shock with virtually no beneficiaries. T_Movements in the oil price typically generate a wealth transfer from producers to consumers or vice versa and are relatively speaking macroeconomically balanced from a global perspective. T_However, in this instance, the collapse in producer revenue is not matched by consumer gains as the public health measures restrict an increase in (or simply maintenance of) consumption. T_We forecast a record-breaking oversupply in Q2-Q3 of this year, and that includes relatively optimistic assumptions around the gradual lifting of lockdowns by early May (Figure 1). T_The rapid dissolution of this oversupply by spring 2021 assumes that as demand recovery sets in, supply cuts become accelerated.