Morning Commentary: An Avalanche of Negative Headlines
A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
An Avalanche of Negative Headlines
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Alan Rose Foreign Exchange Senior Trader
We begin this week with an avalanche of negative headlines centered on heightened new geopolitical risks in the Middle East. The weekend bombing of Saudi oil facilities is the major story with oil prices jumping sharply by as much as 13% as near 5% of the world oil output has been removed from the markets. Oil prices are correcting slightly lower as the Saudis believe they can restore one-third of the lost oil supplies within a few days. President Trump has authorized the release of oil from the U.S.’s Strategic Oil Reserve if need be.
But this attack on the Saudi oil facilities is a potential game changer for Middle East politics and brings heightened new tensions to this geopolitical mine field. There is nothing to suggest that this is a one-off event and the attacks highlight the vulnerability of the world’s most important oil exporter. Geopolitical tensions will remain heightened as the assessment continues as to who is to blame for the attack. Adding to the woes of the market was disappointing economic data out of China (see below) and the announcement of a GM strike impacting 46,000 workers and thousands of suppliers.
Energy prices are sharply higher across the board while global equities and G7 interest rates are only modestly weaker. Safe haven assets are on the rise (DXY, JPY, and Gold) and countries that are largely energy independent (Canada, Norway, and Mexico) are faring better against this torrent of negative news. Adding more wood to the fire for this week will be the key FOMC meeting on Wednesday. As a reminder to those that did not live through the 1970’s higher oil prices carry a double-edged sword of both potentially weaker growth and higher inflation.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
Chinese economic data for August came in weaker than expected and added to the negativity surrounding the Asian opening. Industrial production grew only by 4.4% which is the lowest level in a single month since 2002. In addition, retail sales came in weaker than expected. The Chinese yuan is weaker on the session.
Brexit is currently on the back burner as Parliament has been suspended and is on recess. PM Boris Johnson travels to Luxembourg to meet with European Commission President Juncker and discuss a “rough shape” of a Brexit deal. U.K. equities, interest rates and the British pound are all lower today partially related to the global news headlines and due some of the euphoria from last week wearing off.
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