As I was mulling over the ECB rate decision last week I came across an interesting and helpful piece from the Bloomberg market live blog which I will detail below. The reaction to the ECB rate decision was to put in a firm reversal on the EURUSD pair. The markets live blog made the case for a medium term bullish turning point:
1. Rates – the ECB cut rates, but not more than expected. Euro rates have been deeply negative for years and will stay negative for years and these small moves changes little at the margin. Draghi has also explicitly said that monetary policy has reached it’s limits and fiscal policy needs to step up now
2. Tiering – Is finally here and should relieve the impact of negative rates. The suffering of the European banking sector has been dragging on the regions economy. Tiering is a positive for the Euro, even if it is mild
3. QE – ECB officials have shown that they will do whatever it takes for however long it takes. This is a positive for the Euro as it removes tail-risk outcomes enhancing the euro’s appeal as a reserve currency, and a potential haven asset.
Ok, that was the heart of the article and one takeaway we can definitely take from this is thatany news of fiscal policy stimulus from the eurozone will be euro positive. One headline to watch out for, as it should be good for a quick +50 on the EURUSD when it comes.
Iran foreign ministry spokesman says that the two won’t be meeting in New York
Iranian president Rouhani will be in New York for the United Nations General Assembly starting this week but there is still no clear indication that he will be meeting with US president Trump during his trip.
This just reaffirms that notion and continues to see Iran draw a hard line that they won’t head to the negotiating table until the US removes current sanctions against the republic.
British Chambers of Commerce cut its forecast for economic growth this year and next
slower global economy
U.S.-China trade tensions
persistent drag from Brexit
Growth forecast for this year to 1.2% from its June forecast of 1.3%
2020 to 0.8% from 1.0
“Our latest forecast shows a number of warning lights are flashing for the UK economy, even if we are able to avoid a messy and disorderly exit from the EU in just a few weeks’ time,” BCC director general Adam Marshall said.
Reuters with the report, pretty sure this was said already but if not:
Australian intelligence determined China was responsible for a cyber-attack on its national parliament and three largest political parties before the general election in May
five people with direct knowledge of the matter told Reuters
Australia’s cyber intelligence agency – the Australian Signals Directorate (ASD) – concluded in March that China’s Ministry of State Security was responsible for the attack, the five people with direct knowledge of the findings of the investigation told Reuters.
The five sources declined to be identified due to the sensitivity of the issue. Reuters has not reviewed the classified report.
Where we are at is its expected there will be supply disruptions, for how long depends on how quickly the facilities can be repaired, but in the very short term, ie coming days, its expected Saudi can continue supply from stocks. UBS caution:
spare capacity is limited
However, spare capacity is primarily in the hands of the Saudis UBS assess this at 70% of spare capacity)
add that, with 70% of spare capacity, attack is a reminder that large disruptions in Saudi Arabia mean the ‘reaction function’ of OPEC to cover any supply disruptions is limited
Attacks increases concerns on about supply security in the Middle East
Oil price risk premium should heighten
sudden change in geopolitical risk warrants elimination of the $5-10 a barrel discount on bearish sentiment and also adds potential $5-10 a barrel premium to account for threats to supply, sudden elimination of spare capacity
prices are likely to break out of the current $55-65 a barrel options range
test high $70s
could move higher still if Saudi output is curtailed for a more substantial period
Note, exports from Saudi are expected to remain around normal levels this week as inventory is drawn upon. Evidence of prolonged curtailment of supply due to damage to production facilities is what to watch for.