Week Ahead: UN meeting & oil shock, repo spike aftermath

Introduction

Looking ahead to the week beginning September 23rd the major event of the week is the United Nations General Assembly – or UNGA which could be a pivotal moment for Brexit but as far as wider markets, we think the week will most likely be framed as an aftermath of the unusual price moves in oil and repo markets last week. That said, we will still run down the key economic data releases for the week.

Markets backdrop

Oil has seen the biggest changes – with its biggest intraday swing since Brent crude oil futures first began trading thanks to the drone strike in Saudi Arabia. Short term money markets were out of whack – with a big spike in repo rates thanks to a shortfall in funding. Stock markets haven’t been perturbed by the gyrations in oil or repos though – with US indices sitting just below record highs. The dollar is little changed after the Fed’s well-telegraphed rate hike and the British pound has been drifting lower with the rising chances of a renegotiated Brexit deal.

Eco highlights

The UN meeting runs from Tuesday the 24th through Monday 30th – As far as data goes, PMIs for Germany are expected to show the country hovering above contraction in its Composite reading – with IFO business confidence data also expected to decline slightly. We already know Germany is in a slump so a slide in the data could actually bring forward fiscal easing – so could even be viewed as a positive for the euro. The RBNZ is expected to stay on hold at its meeting this week but given the weak GDP reading a surprise cut is not impossible. We also have US GDP which is expected to hold at a respectable 2% y/y.

UN Meeting

UK Prime Minister Boris Johnson is scheduled to meeting European Commission President Donald Tusk as well as Angela Merkel at the UNGA. The end of September has been framed by a few European politicians as an unofficial deadline for when the UK must present some concrete alternative to the Irish backstop. Our thinking is that once Boris has left the UN, the UK will submit its proposals and we’ll know how close we are to a Brexit deal, another delay – or perhaps a No Deal. It’s hard to see how the whole thing plays out of course – but short term good feelings about a deal should still be positive for the British pound.

Oil & Repo aftermath

At the time of filming oil is holding onto $63 as support after last week’s spike over $70 and subsequent collapse. While trade relations are better – traders are likely to be paying especially close attention to Middle Eastern geopolitics. Trump looks set to double down on sanctions on Iran – as much as you believe that is even possible to achieve – it should be a positive for oil prices because of the extra curb on Iranian exports. The bigger gains of course would be if Trump does not go down the route of sanctions and favours military intervention. Even if the US doesn’t side with Saudi Arabia in retribution against Iran – which is being accused of the drone strikes – Geopolitical tensions means oil should be priced higher than current levels would suggest.

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