Evening market comment: Saudi tensions and Brexit mark the day

Saudi tensions and Brexit mark the day 

European shares had a positive start to the week and the DAX, which grappled with some technical problems at the start of the day, saw an uptick of nearly 0.70%. In contrast, the US markets were more undecided, running into some resistance as domestic retail sales data showed barely any increase in September. Retail sales grew by 0.1% and had it not been for strong car sales would have declined on the month.

Stepping back from the brink

The US has opened up a new political battlefront over the weekend but with a $110 billion arms deal and the price of oil at stake seems to be backtracking as quickly as it walked into it. The US suspects Saudi Arabia of killing Washington Post journalist Jamal Khashoggi after he entered the Saudi consulate in Istanbul two weeks ago, a claim the Saudi king has since denied. Over the weekend President Trump threatened the country with severe punishment triggering a counter-threat from the world’s second largest oil producer and through a political commentator the Kingdom made a veiled threat to allow oil prices to double or quadruple. 

The US recently secured a $110 billion weapons deal with the country and is keen not to lose it not only for the hefty income and large number of jobs this will mean but also because Saudi could choose either Russia or China as an alternative partner. The deal involves major US blue chips including Lockheed Martin, Northrop Grumman, Exxon, and Honeywell all of which are trading slightly higher after President Trump toned down his threats. He is now sending the US Secretary of State to discuss Khashoggi’s disappearance with the Saudi King who claims no knowledge of the incident.

Ironically, it was UK defence giant BAE Systems that bore the brunt of the dispute, trading down 3.46% on the day, as a conflict with the oil producing country could threaten its £10 billion deal for 48 Typhoon jets. The oil market was surprisingly placid about rising political tensions with Brent crude trading up 0.35% and WTI up 0.39%. Instead some investment went into gold and gold shares, notably Rangold and Anglo American.  

Brexit spells more bad news for UK business

The cost to the UK over Brexit keeps ratcheting up even before the talks have come to a standstill. Pharma giant AstraZeneca now plans to stop investments in Britain until there is clarity over Brexit and the company is stockpiling medications in the UK and Europe to avoid potential supply disruptions in case of a no-deal outcome. The teen and tween fashion chain Claire’s which owns over 350 stores in the UK plans to close its underperforming stores in the UK after its US parent company emerged from Chapter 11 protection. The US company now managed by investment funds Elliot Management and Monarch has emerged from bankruptcy protection and restructured its $2 billlion in debts.