Someone is in Trouble......Who Blew up the Saudi Oil fields? FOMC Announces on Wednesday

What You Need to Know Today

Someone bombed the Saudi Oil Fields

Lets hope that they are prepared for the consequences

FED meeting due on Wednesday

So while stocks ended last week mixed – they never did surge up and thru the years high – as I thought they might…..the excitement of moderating tensions between the US and China and any fear of the coming recession failed to ignite the ‘Momo’ guys – yet stocks managed to end the week closer to the highs than not.  All the playing nice has caused investors and algo’s to march ahead – with China saying that they wouldn’t impose any new tariffs on US agriculture goods and Trump saying that he would delay the new tariffs that were set to go into effect on October 1st.  Retail sales data showing that the US consumer is alive and well, sales topping expectations  with a m/m reading of +0.4% vs. the expected +0.2%.  The very crowded treasury trade that saw the 10 yr. yield go to 1.5% over the past month – has rebounded and ended the day at 1.9% - sending bond prices falling…..remember – as prices go down, yields go up (and vis versa).  And you would expect that as bond prices fall – then the expectation of any recession falls as well – now while that fear has not gone away completely – no one now expects a recession anytime soon.    And the European Central Bank action last week – only put more pressure on the FED to make that cut that the mkt expects….so expect to hear Jay Powell cut rates by 25 bps on Wednesday – but pay attention to what he says as a follow up. 

Like I said on Friday – will he announce the beginning of a rate cutting cycle – or will he stand up and say ok – no more for now?  And that is the risk – because again – the mkt is expecting further cuts, but there are some members of the FED that have changed their minds going forward – and are suggesting that it is time to slow down…..I mean why continue to cut rates when the US economy is doing fine?  In fact – while I don’t think we need this cut – Jay Powell and the FED is BACKED into a corner…..they have no choice but to cut, because if they don’t cut on Wednesday the mkt will go into a free fall (temporarily) and Jay Powell will get tarred and feathered – so let’s just hope that Wednesday is it. 

So by now you’ve heard about the bombing of two Saudi oil fields over the weekend….. the Houti’s   (Yemen) are taking responsibility for the bombing the Abqaiq and the Khurais oil field facilities  – cutting Saudi  oil production in half (loss of 5.7 mil barrels) which equates to about 5% of global demand….but who is kidding who?  Many are suggesting that the attack was actually carried out by Iran (Iran denies any involvement)  and Secretary of State Mikey Pompeo is at the top of the list tweeting out that

“Iran has launched an unprecedented attack on the world’s energy supply” . 

Not to be outdone – Trump followed up tweeting that

“Saudi Arabia oil supply was attacked. There is reason to believe that we know the culprit, are locked and loaded depending on verification, but are waiting to hear from the Kingdom as to who they believe was the cause of the attack, and under what terms we would proceed”.

And overnight oil spiked higher on this news….with WTI opening up 12% at $61.48/barrel, before calming down and falling back below $60 barrel.  Now the Saudi’s have about 45 days of supply to keep the mkts in balance, and the US has our strategic reserves that could also help to keep the oil mkts stable during this time of repair- but do not kid yourselves – this is far from over and expect more disruption in the Mid-East as result of this attack.   And while this was an unprecedented attack  - the Saudi’s appear to have it under control – and are working hard at restoring production at both facilities. 

That being said – global markets are under pressure – but are not falling out of bed.  Eco data in China -  industrial production of 4.4% y/y – the slowest pace in more than 17 years set the tone, but China has also cut the reserve requirement ratio for banks and that went into effect first thing Monday morning.  They cut that requirement by 50 bps  and have indicated that could cut by another 100 bps for some qualified banks.  These cuts would release nearly $112 bil into the Chinese economy.  All this is in direct reaction to the toll that US tariffs are taking on the Chinese economy……Add in the oil attack and that just creates more angst for a nervous mkt…… Japan – closed, Hong Kong -0.83%, China -0.37% and ASX +0.06%.

In Europe – mkts there are also under pressure as this oil story unfolds…..Additionally – the WTO (World Trade Org) has given the US permission to impose punitive tariffs on the EU over airline subsidies – so this is also taking a toll on mkt sentiment.  And BREXIT?  Yes – that is still ongoing and UK PM ‘Bojo’ is suggesting that this week will be ‘key’ to securing a deal or not.  And in Italy – just when you thought it was over – Former PM Matteo Renzi has announced that he is breaking away from the Democratic Party to set up a new party…and this is sure to complicate the new coalition that came together only weeks ago…..FTSE – 0.25%, CAC 40 – 0.76%, DAX – 0.52%, EUROSTOXX -0.67%, SPAIN -0.8% and ITALY -0.99%. 

US futures are down this morning but as I said – not what you might expect…..the Dow is off 100 pts, the S&P lower by 11 pts, the Nasdaq off by 57 pts and the Russell down by 5 pts.  And while this is the largest supply shock ever – it is not causing wide spread panic – yes – mkts are concerned, and this story is not over and with Trump telling us we are ‘locked and loaded’ it leaves us to wonder – what’s next?   My sense is that the S&P will back off to the 2950 level – which is also trendline support - as this story unfolds…..Expect to hear more about who is really responsible for this attack and then prepare for the consequences.  Energy names are sure to be on fire today – while airlines and other transports will most likely come under pressure as the cost of oil spiked higher raising the cost of doing business. 

There is no real eco data today, but tomorrow we’ll get Industrial Production – exp of +0.2%, Manufacturing Prod – exp of +0.2% and Capacity Util of 77.6%. On Wednesday we get Building Permits exp of -1.3% and Housing starts of +5% - which would be a very strong number.  And then its Jay Powell and company – ready to announce a 25 bps cut taking the range to 1.75%/2%,   But again – its about what he says about the future path of rates that will drive the next move in stocks.  Investors are expecting more cuts – but is that what Jay Powell will say?

Gold which has sold off from the September highs of $1,550/oz back to $1500/oz is up $11 today on the back of global unrest.  (think oil).  My sense is that we are in the $1500/$1550 range for now.

 

Linguine Aglio e Olio

Considering we are all caught up with the oil space - what better way to eat than the classic Italian dish from Abruzzi  - Aglio e Olio - (Garlic and Oil)

Abruzzi borders the region of Lazio to the west, The Adriatic to the East, Marche to the north and Molise to the south-east….the capital of Abruzzi is L’Aquila – the city that got hit by the earthquake on April 6, 2009.  The damage was tremendous – much of the capital city was destroyed.    There are over 150 km of beaches on the east coast along the Adriatic and the scenery is spectacular.  To the west – you will run into the Apennines Mountains – which create one of the most mountainous regions in all of Italy.  The climate varies from warm and sunny on the coastline to an Alpine climate deep in the mountains.

Linguine Aglio Olio is a simple dish to make…you need:  Linguine, 6 – 7  cloves of “thinly sliced” garlic, olive oil, Fresh grated Reggiano Parmigiana, Chopped Italian parsley, red pepper flakes and s&p.  Begin by bringing a pot of salted water to a rolling boil and add the linguine.

Bring a pot of salted water to a boil.  Add the pasta. 

In a  lg sauté pan – add like ½ cup of olive oil and the sliced garlic – now turn the heat up to med high and sauté the garlic….here is the trick – you do NOT want to burn the garlic – you want to toast it.  Once the oil is hot and the garlic begins to sizzle – turn heat to simmer and continue to stir…allowing the garlic to brown….once toasted (will have a nutty color) add one ladle of the pasta water and turn the heat OFF.  This will stop the cooking…..

In the meantime – the pasta should be done – just aldente…strain – reserving a mugful of water – add the linguine to the large sauté pan with the garlic and mix well.  Here is where you would add some red pepper flakes if you like.  Do not forget the handful of fresh grated parmigiana cheese and chopped parsley.  Toss and mix well.  Serve immediately – offering more fresh grated cheese to your guests.   (if you sense that it is too dry – feel free to add back a bit more of the pasta water to moisten – but do not drown…..only moisten).