TweetonOilandJamesGleick'sChaos

The tweets by the US President always had the ability to move the market in either direction. All of us clearly remember his tweets on North Korean crisis or on the US China trade dispute and how the markets used to gyrate on each and every word of the same. Some twitter purists also analysed in detail that with every new tweet of his for how long the markets remained in turbulence.

Hence when his yesterday’s tweet sent the oil prices into stratosphere it felt like the return of good ol’ times something like a digression from the continuous Corona news. US President wrote that he had a call with the Saudi Prince who in turn had spoken with Russian President. He further wrote that they will be cutting the oil production by 10 million barrels and may be “substantially more”. The effect of tweet was enormous as the price of April end brent crude contract went from 26.25 $/bbl to 34.75 $/bbl in a matter of minutes. Later in the day both the Russian and Saudi officials remained non committal to the production cuts which prompted the prices to correct. In the virus related news, the total number of infected people across the world crossed the 1 million mark as countries continue to grapple with the medical and economic fallout of the pandemic. One stark data point which got released yesterday was the US Jobless claims. More than 6.6 million people filed for unemployment benefit for the week ending march 28. This is on the top of 3.3 million who had filed last week. With the economy continuing to remained locked indoors the numbers are expected to surge even further.

In 1987, James Gleick had written a book named Chaos. It was basically a primer on the Chaos theory and described vividly that how small events in a remote corner can set off a chain reaction resulting in a much wider impact in another corner of the world. The impact is colloquially called the butterfly effect. In case of Corona Virus epidemic, something which purportedly started in a wet seafood market in Wuhan has hopped seven seas and thrown out a New York’s restaurant based janitor out of job is a clear illustration of butterfly effect. The point being that through which route the chaos would manifest remains unclear and hence the business of preparation is often inadequate. Policy makers across the world are now trying to curb the chaos through the tools which they have. Provide unemployment relief, debt repayment moratoriums, easy liquidity etc. But the flapping of the butterfly wings or the higher order effects can hardly be restrained. Someone out of job stops the mortgage payment, mortgage lender then reneges the payment on its bonds, the bank holding those bonds experiences loss of capital, an undercapitalised bank presents another unique set of issues on its own.

In India the rupee market opened after a holiday and trades at 76.05 now. After the release of H1 borrowing calendar day before yesterday the 10 year bond trades at 6.30 now. On the FII side the total outflows for the month of March ended at 120000 Cr INR. Compare this to the data point that the cumulative FII inflows into India for 2017,2018 and 2019 combined stood at 142000 Cr INR approximately.