Saudi tensions build

The week starts off on a cautious note and with a blip. 

Technical issues delayed the trading of the DAX index in Frankfurt but other European indexes are notching lower, as are Asian shares. The FTSE is only just holding its head above the water, helped by miners and oil companies but is being weighed down by defence giant BAE Systems over tensions between Saudi and the US. 

Trump threatens Saudi over missing journalist

The disappearance of a dissident Saudi journalist who worked for the Washington Post is whipping up an international political storm as the US is pointing the finger of blame at Saudi Arabia. President Trump has threatened the country with severe punishment if it transpires that the journalist who was last seen at the Saudi consulate in Istanbul has been killed. It is not clear at this stage what that punishment would be given that the US does not intend to cancel is multi-billion-dollar arms deal with the country. Also, the US is less dependent on Saudi oil than it used to be, given its domestic shale production and it also exports large amounts of crude oil itself. Nevertheless, tempers are running high, Saudi stocks have dropped 7% over the weekend and now the country is considering economic retaliation. 

So far the oil market is withstanding the verbal war and though prices are slightly higher, Brent crude 0.81% and WTI 0.53%, they are a good $5 below the peak last week when concerns over Iranian sanctions and Hurricane Michael whipped up Brent prices to $86. European oil traders are taking the exchange with a pinch of salt but that may change once US markets open. 

BAE, however, is not so lucky and its shares are down 1.5%. BAE’s Saudi contracts are the company’s bread and butter, its recent sale of 48 Typhoon jets worth over £10 billion has secured a deal that will generate thousands of jobs over the next ten years.

Stalled Brexit talks hit pound 

Sterling is under pressure this morning after Brexit talks hit a bump in the road ahead of the EU summit this week. Chancellor Philip Hammond lifted market spirits last week saying that negotiations are further along than expected but since then negotiations have stumbled over the UK’s land border with Ireland. With no deal in place the pound remains fragile against the euro and the dollar, trading down 0.27% and 0.21% respectively.