The United States has solved one diplomatic problem with the Turkish government releasing an imprisoned American pastor and opened up the possibility of US sanctions against Turkey being unwound. But President Trump has waded into a new diplomatic crisis, this time with Saudi Arabia, threatening severe actions against the world’s largest oil producer if it transpires that a missing Saudi journalist was murdered in Turkey. Saudi Arabia has not taken these threats lying down and the risk is that the government retaliates with oil production cuts and adds further fuel to a rising crude oil price.
This is an unwelcome development a time when the outlook for global trade and growth is at best murky and markets have responded by selling the Dollar. The greenback is down 0.2% today in trade-weighted terms but ultimately continues to lack a clear direction. The fall in the S&P 500 has been of a similar magnitude following Friday’s 1.4% relief rally.
US data were mixed, with retail sales growth of 0.1% mom in September coming in well below expectations (+0.7% mom) while the NY Empire State manufacturing index for October surprised on the upside (21.1 versus consensus forecast of 20.4). The US economy is in good health but the threats to its trajectory continue to multiply at a time when the Federal Reserve is still intent of hiking rates further.
The Swiss Franc has benefited from the Dollar’s sell-off and global market unease, with the USD/CHF cross down 0.5% and below 0.99 for the first time since 2nd October. The gradual recovery in the Australian and Kiwi Dollars has also extended. Sterling, which had weakened for four consecutive sessions, has stabilised with markets seemingly in the dark as to whether the UK and EU have the ability and willingness to agree on a post-Brexit deal. The net sum of the constant stream of Brexit-news arguably amounts to very little with both sides stuck on the Irish border issue, amongst others. Speculation is rife as to whether the UK and EU can break the deadlock before mid-November, the hard deadline which both sides have given themselves. Two and a half years of negotiations will boil down to the following 3-4 weeks and the one certainty is that there is still little certainty at this stage.
