Trump in 'no rush' to act

Allan von Mehren Danske Bank A/S

Market movers today

The situation in the Middle East continues to remain tense after the attack on Saudi oil fields over the weekend. Yesterday, Saudi Arabia said preliminary findings showed that Iranian weapons were used in the attacks but stopped short of directly blaming the Iranian Islamic Republic. We expect the situation to continue to remain tense, which in combination with the production cuts in Saudi Arabia will keep the oil price at an elevated level. While Trump yesterday stated he would not go to war with Iran (see below), we have looked at what the consequences could be. The oil price would surge to as high as USD150 per barrel, which would throw the world economy into a recession (for more discussion see Research: US-Iran war would trigger a global recession published this morning).

Today the UK Supreme Court hearing on whether Prime Minister Boris Johnson's prorogation of Parliament was unlawful begins (it is not clear whether the ruling will also be on Tuesday). In our view, the ruling will not be a game changer for Brexit. Today we published a piece looking at our expectations in case of a no-deal Brexit.

On the data front we get the German ZEW indicator . It has fallen steeply in recent months to a seven-year low following the escalation of the US-China trade war, see chart . US industrial production will be out in the afternoon. US manufacturing has been in recession for some months and we expect the data to continue to point to a mild manufacturing recession.

In Scandi it is time for Riksbank minutes , which we expect will reflect the wide divergence of views within the Riksbank, see page 2.

Selected market news

Following the strike on Saudi oil facilities, the oil price has hovered around USD66-68 per barrel. After Trump Sunday tweeted the US was 'locked and loaded', he yesterday struck a more moderate tone saying the US was in 'no rush' to act. 'We have a lot of options but I'm not looking at options right now. We want to find definitively who did this,' he said, adding that 'this was an attack on Saudi Arabia' and not the US. Among other considerations, going into the election year Trump seems to put a very high priority on sustaining a robust US economy. A US-Iran military conflict would be a clear threat to this.

Asian stocks are trading in red territory this morning, while the S&P future is broadly flat from yesterday. EUR/USD dropped back to the 1.10 level yesterday.

UK Prime Minister Boris Johnson yesterday met with European Commission President Jean-Claude Juncker in a meeting that did not seem to make any progress. Johnson said afterwards that a Brexit deal was beginning to emerge. However, this contrasted with Juncker's comments that London had still not proposed an alternative to the Irish backstop that has stymied a deal on Britain's exit from the EU. Johnson again underlined that the UK would leave the EU by 31 October whether it would be with or without a deal.

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Allan von Mehren

Danske Bank A/S

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