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Black Monday: seven keys to understanding a historic collapse


The factors that converge in financial instability with few close antecedents.

03/09/2020 - 12:01

  • Clarí
  • Economy

1 - How did it all start?

This Monday the price of a barrel of oil fell to the lowest level since the Gulf War in January 1991. The crash was due to the fact that over the weekend the Saudi oil company - the state-owned Aramco - had reported that the price of crude oil c As a strategy to face the fall in fuel demand estimated from the effects of Coronavirus on the global economy. The previous week, the International Monetary Fund assured that the world economy will grow less than expected, although it did not specify any figures yet.

2- Why was there a black Monday?

The price of oil, along with that of the US Treasury bonds at ten years, are a barometer that international markets use to monitor the health of the world economy. And a lower price of oil means that companies are worth less , can borrow less money and shrink their investment plans. British Petroleum stock plummeted more than 20%.

As a reaction to this, investors sold more risky assets and bought safer investments, including ten-year US Treasuries. The increased demand for these securities raised the price of this bond to record levels . The contracara has been that the yield paid by the titles are at lower levels. The US Treasury pays for a ten-year bond 0.43% per year. Gold, which is an asset that is considered a refuge in days of financial turbulence, rose just 0.2%. European and Asian exchanges and coins showed corrections down as a counterpart to a greater appetite for safe investments such as US bonds.

3- How does it impact in Argentina?

Directly and indirectly. The first is that the slowdown in the world economy could imply less demand for products from countries directly affected by Coronavirus such as China or even some from Europe (the EU is the fourth destination of Argentine products). Indirectly, the virus could impact the activity of the main partners in Argentina that are more integrated into the world, as is the case in Brazil. Before Coronavirus, Analytica consultancy projected a drop in exports for this year from US $ 57.7 billion (2019) to US $ 53.5 billion (2020).

4- How does debt negotiation affect the global context?

The consultant Elypsis considers that the Coronavirus, and now the impact of the fall of the oil, are two Black Swans - events very few probable and that cannot be anticipated -, for the strategy of Martín Guzmán regarding the debt. "The fall in commodity prices, appetite by investors of risky investments and economic activity, questions the poor fiscal program and how Argentina plans to recover after debt restructuring," says Eduardo Levy Yeyati .

5- What will happen to Vaca Muerta?

Investment plans are delayed because at the sum of Argentine risk, companies in Neuquén would face a longer period to recover the money they put into oil exploration and exploitation if fuel prices are lower as a result of Arabia's decision Saudi

6- What about the prices of agricultural products?

They are driven by the lower aggregate global demand, which means a slowdown in economic activity. For Argentina it is a lousy scenario , given that in order to balance fiscal accounts and to face bondholders, export revenues need to grow . Soy has fallen about 10% in the last three weeks.

7- Will the tax collection suffer?

If export withholding revenues fall, the impact on public accounts - which are already worsening their outlook - will be felt even more. This, coupled with an economic activity that will suffer in general, will end up complicating the fiscal front .

Source: clarin

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