By Stephen Innes
Brexit Brexit Brexit
The fate of Brexit and the UK leadership continued hanging in the lurch Thursday, which predictably dominated the market attention triggering a wretched day for the pound which cratered some 300 pips to a low print around 1.273 and "the street" will be on headline watch across all time zones. By all accounts, UK PM May is at the end of her rope as the Brexit deal is running out of time. GBP is waiting on significant unknowns, but the EU is reportedly optimistic. Bloomberg reports say it is already circulating an agenda for the November 25 Brexit Summit.
Of course, the US-China trade war wandered back into the picture as the cumulative news feeds suggest despite some favourable concessions offered up by China. It appears that both parties are looking to kick the can down the road until February to resolve some significant differences. While not too surprising, the fear here is that this long and winding road to compromise could be dotted with numerous pratfalls.
While the USD dollar has not reacted at all to the data overnight so arguably, traders have put positive US economic signs on the back burner while arguably focusing on Jay Powell's comments yesterday that suggested the Fed is watching downside global risk. If the market starts to ignore positive data while only focusing on the negative, the USD will not benefit from tethering itself to all the positive US numbers which have been at the forefront of USD appreciation this year, an overly dovish ECB and BOJ notwithstanding.
Again, a significant crude build is weighing on market sentiment amid slowing global demand after the Energy Information Administration reported a substantial crude oil inventory build for the week to November 9 of 10.3 million barrels. While US inventory warehouses remain at eye-watering peaks and the most significant build since 2017, by-products drew down significantly which held traders' downside ambition in check.
Also adding a modicum of support, Saudi Arabia admitted they were duped by President Trump who may have orchestrated probably one of the best sleight-of-hand tricks in some time. He effectively drove prices lower by offering up far more Iran sanction waivers than expected. The US administration caught OPEC wrong-footed by what was supposed to be the harshest sanction ever applied to Iran, only for the US to take relatively mild action exacerbating the supply glut.
Indeed, the Saudis cannot be too happy with Trump's waivers, suggesting OPEC will cut production of 1.4 million barrels while risking the wrath of President Trump. Indeed the "Made in America oil policy" has significantly dented oil market sentiment. US shale producers are equally responsible for global oversupply. The latest data show producers running at an accelerating pace, placing the US as the largest oil producer in the world. As well, President Trump's stinging OPEC tweets have legs. And then, US tariffs are compounding China's economic woes and are fanning concerns about demand growth in 2019 and 2020.
The markets do appear to be finding some semblance of a base as the relatively flat and supportive price curve suggests traders are respecting the fact OPEC and its allies considering production cuts of more than the initially mentioned 1mm barrels per day. However, Russian President Vladimir Putin claimed that Russia, the largest non-OPEC ally, refuses to commit to production cuts just yet as he sees approximate current price levels as suiting them just fine. Putin went on to state that "where it [crude prices] is now, where it was recently, anything around $70 suits us [Russia] completely."
So, for the time being, looming production cuts will act as a foil to the downside risk from shockingly high US inventory builds.
A softer US dollar, GBP notwithstanding and the Fed triggering some early warning signals about global growth risk in 2019 are being viewed in a positive light for the gold market. Compound this with the usual toxic combination of tasks brewing in virtually every corner of the political world; Gold should continue to find demand on dips provided the USD remains in check.
All is a moot point next to Brexit headline watch.