MORNING ROLL CALL
Mario Draghi reads the riot act to the UK and warns of the consequences of a hard Brexit.
“The Riot Act (1714) was an Act of the Parliament of Great Britain that authorised local authorities to declare any group of twelve or more people to be unlawfully assembled, and thus have to disperse or face punitive action.”
Nowadays, we use the phrase “Riot Act” more casually in the UK. We tend to say; “reading the riot act” when describing an unruly mob being lectured by a figure of authority. However, the punishments for ignoring the Riot Act back in 1714 were severe – penal servitude for not less than three years, or imprisonment (with hard labour) for up to two years.
It would appear that the president of the ECB is now stepping up to the plate and beginning to get impatient regarding the UK government’s continual avoidance over revealing any detail regarding their Brexit plan, that’s assuming they have a plan. And whilst he can’t hand out prison sentences to the UK government minsters who’ve created the: shambles, chaos and confusion, it’s clear that relationships with the ECB are near to breaking point.
As predicted, the subject of oil and the upcoming OPEC meeting, dominated market discussion throughout Monday’s trading sessions. Finally displacing the secular USA market rally, since presidential elite Trump won, as the number one trending market subject. And whilst on the subject of the “Trump bounce”, USA markets fell on Monday, perhaps many investors were taking profits off the table ahead of the next inevitable seasonal surge, the Santa Rally.
Certain OPEC members are trying to agree the first production decrease in eight years, seeking a production cut of approx. 500,000 barrels a day, to establish a medium term price of between $50-$60 per barrel. The final round of diplomacy before the meeting on 30th November focused on how to share the cuts, with Russia firmly resisting a supply reduction. This caused the cancellation of crucial talks with non OPEC suppliers. Khalid Al-Falih (the Saudi oil minister) suggesting on Sunday the possibility of leaving Vienna without an agreement, causing an overnight futures slump in the oil price.
Al-Falih’s comments came two days after Saudi Arabia pulled out of a meeting with non-members including Russia. Both nations have resisted cutting their own production, but need an OPEC deal to increase prices. Iraqi Oil Minister Jabbar Al-Luaibi stated (as he arrived in Vienna) that he was optimistic OPEC can reach an agreement. This was the reason oil enjoyed a recovery later in the afternoon trading session on Monday, having reached a low of circa $44.70, oil was trading at approx $46.45 as New York reached its close of business.
Sterling came under attack and fell versus all of it’s major peers, after president of the ECB Mario Draghi stated that the UK would suffer economic hardship (if a hard Brexit takes place) due to the the noises from the UK govt. regarding trade protectionism. GBP fell 1.05% versus AUD, 1.5% versus JPY, 0.55% versus USD and 0.67% versus EUR. USD also fell on Monday, down 0.5% versus AUD, down 0.96% versus JPY, and 0.12% versus EUR. The Dollar Spot Index, which tracks the greenback versus its 10 major peers, fell by 0.3 percent.
The UK’s main equity market, the FTSE 100, sold off to close the day down 0.60%. The euro STOXX 50 closed down 1.04%, France’s CAC was down 0.88% and Germany’s DAX down 1.09%. The S&P 500 Index slipped circa 0.52% percent to 2,200 near the close of the New York session. Whilst the Russell 2000 Index finally halted its two week surge to fall sharply, down by 1.29% near to New York’s close. The DJIA slipped by 0.24%, but still remained above the critical 19,000 level.
Gold recovered somewhat, up 0.8% over the day to reach $1192. However, gold has still endured a significant sell off since the USA presidential election, down circa 8.5% in the month of November. The Bloomberg Industrial Metals sub-index posted its largest five day gain witnessed since 2011, zinc reaching a nine year high, with Palladium reaching a seventeen month high.
Key events on the economic calendar for 29/11/2016
France reveals its latest GDP data at 7.45am London time. Currently the year on year figure is up 1.1%, the analysts’ expectation is for this figure to remain static. At 9.30am mortgage data for the UK is revealed, with 65K mortgage approvals for October being the considered estimate, a rise of circa 2.5K on the month. Net consumer credit in the UK is predicted to have risen by 1.5 billion in October.
Preliminary GDP data from the USA is printed at 13.30 London time. The annualised figure is expected in at 3% growth, with the third quarter growth at 1.5%. The Case-Shiller house price index in the USA is expected to reveal stable annual increases of circa 5.20%, up from 5.13%.
At 15.00 London time we receive USA consumer confidence data, a reading of 101.5 is expected, up from 98.6 in the previous month. This will be the first such reading since the shock presidential election result and will be a far better barometer of how the USA population and business owners are feeling and thinking, as opposed to the GDP figure, which naturally lags.
