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Friday, September 20, 2019
Markets digest Saudi oil attack and Fed’s split decision
TradeTheNews.comWeekly Market Update: Markets digest Saudi oil attack and Fed’s split decision
This week’s trade opened engulfed in a significant geopolitical scare after a largescale attack on Saudi Arabia’s oil infrastructure over the weekend. Oil prices jumped nearly 15% on Monday as Saudi and US officials were quick to point the finger at Iran. Crude prices retreated significantly by midweek as it became clearer that production losses would most likely be recovered much more quickly than initially thought, and President Trump indicated the US would remain measured regarding any kind of response. Oil prices ultimately gained 8% on the week and the US once again ratcheted up financial sanctions on the Iranian regime amid tense rhetoric from both sides.
The Saudi news didn’t dramatically spill over to other asset classes. Stocks opened lower but rebounded to stay within shouting distance of this summer’s all-time highs as focus shifted to a raft of central bank decisions. The US Fed followed through on Wednesday and cut rates 25 basis points, as expected, while coming up short of promising another cut before the end of the year. As usual, Powell left that door open at the press conference by acknowledging if things were to deteriorate faster than their models suggest future rate cuts and a potential return to balance sheet expansion would clearly be on the table. The views among FOMC members remained disparate with the number of dissenters rising from 2 to 3, with Bullard sounding a dovish dissent asking for a bigger cut. Fed officials were also forced to confront a spike in overnight lending rates on Monday and Tuesday leading to handwringing that lending markets were having trouble functioning efficiently. The NY Fed did a series of repo operations to bring the fed funds rate back in line with the targeted fed funds band and most market watchers viewed the spike in overnight rates largely due to technical reasons like quarter end tax payments amid high coupon issuance. The BOE and BOJ left both asset purchases and rates on hold as markets expected while Norway surprised markets by hiking rates to stem weakness in its currency. Friday saw additional monetary stimulus tweaks from the PBOC while India’s government cut corporate tax rates significantly resulting in a boon to the Indian stock market.
US economic data was generally firmer than expectations headlined by strong housing data. The Philly Fed reading also topped expectations but came with a notable jump in the prices paid component. US and Chinese officials met in Washington late in the week amid continued speculation that renewed Chinese purchases of US agriculture along with softening by the US administration towards Huawei could keep the two sides on a path towards higher level talks next month. On Friday a Chinese agricultural delegation left early canceling trips to key US farm belt states, walking back some optimism seen around this week’s talks. Also in Washington, the USMCA seemed to crawl towards consideration by Congress amid reports Democrats were becoming increasingly frustrated by their inability to have a say in the ongoing negotiations with the Trump administration on the trade pact. Brexit talks continued between UK and EU officials with some signs negotiators were finally broaching details on potential workarounds to the thorny Irish backstop issue, inducing continued buying in the British Pound. For the week, the S&P lost 0.5%, the DJIA slipped 1%, and the Nasdaq dropped 0.7%.
In corporate news this week, talks between General Motors and the UAW broke down, resulting in idled plants and furloughed employees across the US and Canada. Airline shares moved a leg lower early in the week after the attacks in Saudi Arabia caused a spike in oil prices. US Steel, Nucor, and Steel Dynamics all issued Q3 profitability guidance below consensus, citing softening prices. Corning cut its guidance for Display Technologies and Optical Communications segments for Q3 and FY19, forecasting lower than expected demand and capital spending from clients. FedEx missed on its top and bottom line for the quarter and also cut its earnings outlook, with management blaming the weakness on the trade war. Commerzbank announced plans to cut an additional 4,300 jobs and 200 bank branches as it launches a new strategic program. Microsoft shares caught a bid after the company boosted its dividend and authorized a $40B share buyback.
GM UAW union rejects offer from General Motors, to go on strike starting at midnight; Unifor supports strike action
*(CN) CHINA AUG RETAIL SALES Y/Y: 7.5% V 7.9%E; YTD Y/Y: 8.2% V 8.3%E
*(CN) CHINA AUG INDUSTRIAL PRODUCTION Y/Y: 4.4% V 5.2%E; YTD Y/Y: 5.6% V 5.8%E
(SA) Saudi Aramco reportedly could go weeks without the majority of production at Abqaiq facility (world’s largest crude stabilization facility, which processes 7M bpd) - press
(SA) Saudi Arabia: Initial investigations have indicated that the weapons used in the attack on oil refineries were from Iran; investigation is still ongoing to determine the source of the attack; UN and international experts will be invited to observe
GLW Cuts guidance for Display Technologies and Optical Communications segments for Q3 and FY19; seeing lower than expected demand and capital spending from clients
(IR) Iran supreme leader Khamenei: If U.S. repents & returns to JCPOA it withdrew from, then it can join & talk with Iran among other members of the deal. Otherwise no negotiation will take place between Islamic Republic& U.S. officials at any level, whether in New York or anywhere else.
*(DE) GERMANY SEPT ZEW CURRENT SITUATION SURVEY: -19.9 V -15.0E (lowest since May 2010) ; EXPECTATIONS SURVEY: -22.5 V -38.0E
*(US) AUG INDUSTRIAL PRODUCTION M/M: 0.6% V 0.2%E; CAPACITY UTILIZATION: 77.9% V 77.6%E
(SA) Saudi Arabian oil output will return to normal levels sooner than initially believed, according to sources with knowledge of Saudi oil operations - press
*(SA) SAUDI ENERGY MIN: OIL EXPORT SUPPLY HAS RESUMED AS BEFORE; PRODUCTION CAPACITY WILL BE FULLY BACK ONLINE BY END OF SEPT AT 11M BPD - PRESS
(IL) Israel news organizations release election exit polls; election appears too close to call
FDX Reports Q1 $3.05 v $3.17e, Rev $17.0B v $17.1Be
*(US) AUG HOUSING STARTS: 1.364M V 1.250ME; BUILDING PERMITS: 1.419M V 1.300ME
(US) President Trump tweet: I have just instructed the Secretary of the Treasury to substantially increase Sanctions on the country of Iran
*(US) FOMC CUTS TARGET RANGE BY 25BPS TO 1.75-2.00% (AS EXPECTED); SUSTAINED EXPANSION LIKELY, UNCERTAINTIES ABOUT ECONOMIC OUTLOOK REMAIN
X Guides Q3 -$0.35 v -$0.11e, adj EBITDA $115M (previously declined to guide); expects 2.5K headcount reduction at U.S. Steel Europe
T Reportedly exploring separating from DirecTV unit; could consider spinoff or combination with Dish - press
*(AU) AUSTRALIA AUG EMPLOYMENT CHANGE: +34.7K V +15.0KE; UNEMPLOYMENT RATE: +5.3% V 5.2%E
*(JP) BOJ LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%; AS EXPECTED
DGE.UK Issues Q1 Trading update: affirms outlook - AGM statement
(JP) Bank of Japan (BOJ) Gov Kuroda: reiterates Japan's economy expanding moderately as trend - post rate decision conference
*(CH) SNB LEAVES SIGHT DEPOSIT RATE UNCHANGED AT -0.75%; AS EXPECTED
*(UK) AUG RETAIL SALES (EX-AUTO/FUEL) M/M: -0.3% V -0.3%E; Y/Y: 2.2% V 2.3%E
*(EU) ECB ALLOTS €3.396B IN TLTRO-3 Operation v €20-100Be
*(UK) BANK OF ENGLAND (BOE) SEPT MINUTES: VOTED 9-0 TO KEEP INTEREST RATE UNCHANGED AT 0.75%; could respond either way in case of no-deal Brexit
*(US) SEPT PHILADELPHIA FED BUSINESS OUTLOOK: 12.0 V 10.5E
(UK) EU's Juncker: Prepared to get rid of the so-called backstop from a withdrawal agreement, so long as "the objectives are met - all of them"- Sky News interview
(JP) Japan Investors Net Buying of Foreign Bonds: ¥476.0B v ¥727.2B prior week; Foreign Net Buying of Japan Stocks: -¥971.9B v -¥161.5B prior week
(DE) Germany agrees on emissions trading system in Climate Deal; To be financed without new debt - German press
CBK.DE Releases cornerstones of new strategic programme Commerzbank 5.0; to cut an additional 4,300 jobs and 200 bank branches
(US) New York Fed Nowcast: raises Q3 forecast to 2.2% from 1.6%; raises Q4 forecast to 2.0% from 1.1%
(US) Fed Reports Q2 Financial Accounts: Household Change in Net Worth: $1.830T v $4.691T prior
(CN) MONTANA FARM BUREAU: CHINA DELEGATION HAS CANCELED ITS FARM VISIT TO MONTANA; AG OFFICIALS TO RETURN TO CHINA SOONER THAN EXPECTED