| Oil soars after a surprise output cut by OPEC+, the UBS-Credit Suisse deal sparks speculation over job losses and high-end travelers cut back on vacation spending. — Kristine Aquino Note: We want your feedback. Please take a few minutes to fill out a survey on how we can make this newsletter better. Thank you. Oil surged more than 8% at one point on Monday after OPEC+ announced a surprise oil production cut of more than 1 million barrels a day. The group abandoned previous assurances that it would hold supply steady, prompting analysts to warn that the move could accelerate Brent crude's return to $100, a level last seen in June. "OPEC+ clearly want a higher price," said Gary Ross, a veteran oil consultant turned hedge fund manager at Black Gold Investors. The move comes just as US President Joe Biden is expected to launch his re-election campaign, giving him a limited range of options with which to respond. UBS's takeover of Credit Suisse may result in up to 30% of the workforce being cut, Swiss newspaper SonntagsZeitung reported, citing an unidentified senior manager at UBS. As many as 11,000 employees will be laid off in Switzerland, and another 25,000 worldwide, the newspaper said. Separately, Switzerland's Office of the Attorney General said on Sunday it was working to identify possible crimes linked to the takeover, without specifying further what it was looking for. The top federal prosecutor ordered national and regional authorities to investigate, according to a statement. Even high-end travelers are pulling back on their vacation spending, saying they want to pay no more than $500 a night for a hotel — that's according to the latest MLIV Pulse survey with 465 respondents, a little more than half from the US and Canada and a quarter from Europe. Only 7% said they will be "splashing out" on their next vacation. As for the rest of the travel sector, more than half of professional investors said negative economic factors, such as a recession, will undermine airline stocks in the next 12 months. Retail investors were more optimistic, with 60% predicting positive momentum in the sector. S&P 500 futures dropped 0.1% as of 5:18 a.m. in New York, while Nasdaq 100 contracts slid 0.6%. The Bloomberg Dollar Index retreated from its earlier highs, lifting most Group-of-10 currencies. Treasury yields climbed across the board as the surprise cut from OPEC+ stoked inflation concerns. Gold fell and Bitcoin climbed nearly 1%. At 9:45 a.m., we'll get data on S&P Global's manufacturing gauge, while figures for a similar measure by ISM are due at 10 a.m. Federal Reserve Governor Lisa Cook will discusses the U.S. economic outlook and monetary policy at an event at 4:15 p.m. Here's what caught our eye over the weekend: Monetary policy is a blunt instrument for fighting inflation. It impacts some sectors disproportionately. It works the same, whether the inflation is related to supply shocks or demand shocks. It's non-linear. One moment the unemployment rate is low and inflation is high and then the next moment one of the biggest banks in the country fails, in part due to losses on its bond portfolio. Unfortunately, for all the well-understood problems with relying on monetary policy, it's the main thing we've got to work with. Policymakers don't have a ton of dials to turn. Nimble and targeted counter-cyclical fiscal policy (raising taxes in a boom, cutting them in a slump) would be nice, but the politics of taxes make that tough. We don't have an independent Fed-like entity that could adjust, say, payroll taxes unliterally. So monetary policy is what we're stuck with for now. Well, for the most part. Last year, the The White House introduced a potentially powerful new tool, with its decision to sell down oil from the Strategic Petroleum Reserve, while simultaneously announcing its commitment to buy back that oil at lower prices in the future. The logic was simple and elegant. Spot oil prices were high, yet domestic producers were slow to ramp up production thanks to an uncertain demand future. By providing a purchase commitment (at least in theory) The White House was in a position to lower the price of oil in the short term, while avoiding crushing domestic operators. Anyway. That was the theory. The Biden administration executed half of what could have been (perhaps could still be?) one of the greatest oil trades of all time, selling oil around the peak last year. Since then the oil price has plunged. But when it came time to completing the other half of the trade (buying low), the DOE has been MIA. Here's Liam Denning on the failure to complete the trade from March. Here's Skanda Amarnath and Arnab Datta from Employ America (which helped formulate the original idea) talking about the DOE whiffing on the moment. They write: "Unfortunately, the Department of Energy (DOE) has yet to show any indication that it is prepared to give credible effect to the President's commitment, with Secretary Granholm providing underwhelming excuses about logistical constraints. Oil prices may have exited the refill range on their own, but the DOE does not seem to have a serious strategy for dealing with the scenario in which oil prices fall sharply or durably below $72. Unless clearer guidance and processes are provided, market and industry participants are more likely to treat the President's commitments with less credibility, thereby undermining its potential stabilizing effect."
Now, of course, oil prices are jumping again because of a surprise production cut announcement over the weekend from OPEC. We don't know the medium-term effect of the cuts, but their existence to some extent speaks to the White House's blown opportunity. The Strategic Petroleum Reserve has the potential at least to be a powerful, counter-cyclical stabilizer that reduces the need for the Fed to do everything on the inflation front. But this is a novel use. And for the SPR to work in this way, it has to have some credibility that its gears can turn in both directions. It needs to be able to boost the price of oil in a slump (by being a buyer of last resort) and it needs to be able to lower the price of oil in a boom (by being a net seller). A pattern of this would bolster domestic industry and provide stability at the pump. The US is the world's largest producer of oil, but unlike the big OPEC players, there's no national oil company. We have no real policy tool for just announcing a cut or hike in a domestic output. And now by failing to build out the SPR mechanism, it looks like despite our size in this industry, we're still outsourcing energy market stabilization to OPEC. Follow Bloomberg's Joe Weisenthal on Twitter @TheStalwart. | 
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