The Day So Far…
Market conditions this morning reflect a sigh of relief in that Hurricane Irma made a last minute change in direction to miss the Miami area while North Korea also refrained from firing another ICBM test. Although some 3-mln homes are said to be without power due to the extensive flooding the worst case scenario for global insurance firms has not materialised resulting in gains across EU insurance firms ranging from 3%-6% this morning. In addition to this, banks such as Goldman Sachs have increased their weighting that recent storms (Harvey/Irma) will have on third quarter US growth but more importantly they suggest that from Q4 onward the US will get a boost from a recovery in consumption, inventories, housing and energy. As such, when looking at FFR futures despite a 10% fluctuation since payrolls on the 1st, the market pricing for a December hike remains largely unchanged at 31%.
Looking to the East, although North Korea did not conduct another missile launch at the weekend it was no surprise to hear the regime warning of retaliation if the UN vote today to approve harsher sanctions on the country gets approved. Although tensions remain high on the Peninsula the market has continued to show a distinct sense of calm largely centred on the low probability assigned by market participants to the situation ever escalating to the point of military confrontation. Complacency is something to be aware of as markets have had a bad track record of late in calling political events correctly (Brexit/US elections) so although markets may have somewhat desensitised to the overall situation it still warrants monitoring given reports of another nuclear test would likely lead to some short-term volatility.
The Day Ahead…
The day ahead is likely to be driven by the two topics discussed above as the calendar is very dull today. Worth noting that over the weekend the Saudi oil minister Al-Falih discussed the idea of extending the existing oil cut pact for an additional three months beyond the existing March deadline. This isn’t entirely surprising as similar rhetoric was adopted by the Russian contingent last week but it does show that with prices close to $50 OPEC and non-OPEC members remain uncertain on the prospect for crude over the coming months and remain present in verbally supporting the price.
One final event to be aware of this afternoon is David Davis who will be speaking from 2.30pm today in the House of Commons following comments at the weekend where he warned of a ‘chaotic’ EU withdrawal if MPs reject the repeal bill. According to Sky News, the second reading vote is expected either on Monday evening or in the early hours of Tuesday. Despite the obvious risks of Brexit negotiations stalling GBP remains sanguine and Cable remains above the 1.3200 level within sight of testing key resistance of the August 3rd high of 1.3287 in GBP futures.
You can review the morning briefing below that I delivered earlier today to our traders on Trading-Live.com.