Oil Prices Fall as Israel and Iran Geopolitical Tensions Mount

Geopolitical Tensions Cause Oil Price Decline

Oil prices fell as reports circled about Israel’s response to Iran, with indications they are likely to refrain from targeting oil or nuclear infrastructure. Flashes this morning indicate that Netanyahu and his defence minister Gallant have agreed on what they do, and approval is now required from the security cabinet. If it’s non-escalatory – i.e. tit-for-tat rockets aimed into the desert then look bearish for oil. If it’s a full-on strike aimed at national energy infrastructure, then it would seem way more escalatory. Meanwhile, prices were already looking soft as OPEC cut its demand outlook again, and the usual China economic story underscored softness in demand.

Spot Brent oil here – looking to see if the MACD completes its bearish crossover and confirms the bearish break below the 50-day line.

European Markets Mixed as Oil Stocks and China Concerns Weigh In

It’s a mixed bag today for equity markets. The FTSE 100 declined early as oil heavyweights fell on the drop in crude prices, and basic resources were lower as Chinese stocks were weaker; the DAX rose clear of the pack, and the CAC was down on luxury and energy. Falling oil prices on a drop in geopolitical premia = good for risk, but oil heavyweights and some ongoing China fears dragged on the indices: TotalEnergies -3.5%, BP -3% and Shell -2%. Hong Kong fell 4%, with Chinese trade data for September falling way wide off the mark. Generally, there is a sense that China’s stimulus efforts are short of the mark, too – nothing but full-scale QE will do now.

US Markets Push Higher with Record High Tech Gains

The Dow Jones and S&P 500 continue on their merry way, with both notching fresh record highs yesterday. Nvidia notched a 2.4% gain on Monday for its first record close since June as tech led the sectors on the broad market. Chipmakers in Asia were higher overnight in reply. There are more earnings today in the US. Analysts see +5% EPS in Q3, rising to +12% in Q4. It was +13% in Q2. I think with the election incoming, we should brace for some volatility, but it’s hard to see the overall bull market end when the Fed is on the side, the US economy continues to deliver growth and a new president (assume Harris as the status quo = no change to the political premia) would probably be positive for US equities.

Fed governor Waller sounded some alarm at the possibility of reigniting inflation, backing a slower approach to easing. He said: “The data is signalling that the economy may not be slowing as much as desired… monetary policy should proceed with more caution on the pace of rate cuts than was needed at the September meeting”. I think there is something of a false debate going on between the jumbos and the minis – whether it’s 50bps tomorrow or 25bps today and 25bps a month; hence, it doesn’t make a heck of a difference to the general direction of travel.

UK Employment Data Suggests Potential Rate Cut

In the UK, there seemed to be enough in this morning’s employment data to justify a rate cut in November. Average earnings declined to 4.9% from 5.1%, and whilst the unemployment rate ticked down, employment fell by 35k, and vacancies were down; at 841k, now 36% below the March 2022 peak. Look around and you can see the end of the worker power in terms of openings and pay growth. Capital is back, and this favours looser monetary policy. What the Budget throws up is anyone’s guess, but it could call for it to be tighter.

Forex Markets Await Central Bank Actions Amid Tightening Concerns

GBPUSD sits at the 1.3040 support, looking for a bit of fresh direction. Cue some ham-fisted remarks from Mr Bailey…?

EURUSD has cracked at 1.09 and looking to take on the 200-day SMA, though MACD looks a bit oversold at these levels. French inflation this morning was lower than expected. Remember to watch for some Waller-esque (gradualist) comments from Lagarde this week - a hawkish cut or, less likely, a dovish hold. The ECB is not ready to throw in the towel just yet even if it’s on the ropes and swaying badly.

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