Oil whipsaws on Middle East news; Dramatic week for Bitcoin

Summary:

• Oil bounces strongly after falling on sanctions news

• GBP recovers after talk of BoE rate cuts

• US stocks set for mixed week; Data also ambiguous 

• Crypto newsletter: Dramatic week for Bitcoin 

OIL and OIL.WTI prices have bounced impressively after earlier taking a nosedive following Reuters reports that the United States offered to lift sanctions on Iran in exchange for talks. The agency quoted Iranian President as a source of information. Before that news broke that Saudi Arabia has moved to impose a partial ceasefire in Yemen. The announcement came shortly after a surprise move by Houthi forces to declare a unilateral ceasefire in Yemen last week just days after claiming responsibility for the attacks on Saudi oil production facilities. Together these stories sent oil down to its lowest level in a fortnight but a rebuttal of the lifting of Iran sanctions from Trump has seen the market recover and oil trades little changed on the day at the European close after being down by more than 2%. 

It’s shaping up to be a bad week for the pound with the currency falling across the board and dropping to its lowest level in almost 3 weeks against the US dollar as the rate dips back below the $1.23 handle. The return of parliament has perhaps caused a little more caution in the markets as investors are starting to feel that the bounce in the pound that we’ve seen in the past month is based on an overly optimistic assessment of the current risks. The latest declines come after Michael Saunders stated the Bank of England may lower interest rates due to Brexit uncertainty. 

Quite why this is moving the markets is unknown to be honest with the biggest surprise being that this is seen as a surprise at all. Economic data has been poor on the whole and while it looks like a technical recession will be avoided with a rebound to GDP growth probable in the 3rd quarter, the levels of activity seen in other metrics such as retail sales and PMIs suggest that the economy is still barely keeping its head above water. Throw in the almost universally acknowledged continued levels of heightened uncertainty on the political front, with markedly divergent Brexit paths still possible and it is actually pretty shocking that a comment that a rate cut is “quite plausible” has caused such a response.   

A batch of data from across the pond has painted a mixed picture of the US economy with the latest look at consumer spending showing both some positive and negative aspects. At the same time the Fed’s preferred measure of inflation came in inline with the expected in year-on-year terms but did dip when viewed from a month-on-month perspective. Looking back at the past week it’s been a bit choppy for US stocks but as we begin the final trading session there’s been a lack of clear direction. A sizable drop on Tuesday saw the S&P500 fall to its lowest level since the start of September, but price moved off the lows into the close has while it was breached the next day on an intraday basis, the closing low has not been taken out. On the other hand pushes higher have also failed to see follow through and the market, on a closing basis, is being contained between the 8 and 21 EMAs. 

It’s been an eventful week for cryptocurrencies with some large declines and our latest newsletter which discusses this in detail can be viewed here.