Morning Commentary: Geopolitical Reverberations

Foreign Exchange - Morning Commentary
Geopolitical Reverberations
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
The attack on the key Saudi Arabian oil field Saturday is still reverberating through the markets. Investors will remain anxious and on edge as the possibility of retaliation remains strong sending further shock waves through a geopolitical area that is key to the world economy. Almost every market was moved by the attack yesterday and while markets are consolidating today, the attack on Saudi Arabia could have long term implications for oil and energy prices and heightened geopolitical tensions in the Middle East and elsewhere.

For today, oil and energy prices are correcting fractionally lower from the record breaking move seen yesterday. Press reports suggest that the damage to the oil facility was more extensive than previously thought and will take much more time before output is restored keeping oil and energy prices elevated for longer than originally thought.  Energy analysts are predicting a move higher in gasoline prices of near $.20-.25 cents per gallon over the next weeks as the market adjusts to potential supply constraints.

Global equities and G7 interest rates continue to move in lock step and both are fractionally lower on the session again. The U.S. dollar is mixed to slightly stronger overall from yesterday’s close; energy related currencies which saw strength yesterday are correcting lower today and safe haven currencies are weaker. The key FOMC meeting begins today with the Fed’s announcement tomorrow at 11:00 PST and markets and investors will be keeping one eye on the economic data, fundamentals and the Fed and one eye on the ticker for any new information regarding the Middle East.
  • PM Boris Johnson met with EC President Juncker in Brussels yesterday but refused to hold a joint press conference. The U.K. Supreme Court starts three days of hearings over PM Boris Johnson’s decision to suspend Parliament. The court has not given a date for when it will rule but it is expected within a week. The British pound is unchanged on the session.
  • Looking at the EZ, the Swedish krona is weaker today on the back of a very disappointing jobs report which saw the UR spike to a four-year high of 7.4% against expectations of 6.8% print.
  • U.S. Industrial Production for August came in much stronger than forecast at 0.6% against expectations of a gain of 0.2%. U.S. interest rates did not react to the news and remain weaker on the session as the overriding concerns emanating from the Middle East are impacting both equities and interest rates.
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