A Brexit hit pound, plus Chinese stimulus hopes lifting the heavy weight miners, enabled the FTSE to briefly move higher on Monday, bucking the trend in Europe. However, the UK index was unable to stay in the black, dragged lower by a weakness on Wall Street, amid growing concerns on geopolitical tensions over corporate earnings.
Chinese stocks experienced their strongest session in three years as Beijing vowed to stimulate the slowing economy. Concerns over the health of the Chinese economy had been rife since the GDP fell to its lowest level since 2009 and as investors fear the impact of the trade tariffs on the increasingly fragile economy. Economic stimulus for the largest global consumer of metals is like Christmas came early for the miners.
Pound dives on domestic political concerns
The pound skidded lower across the board as pressure mounts on growing domestic and international political risk. Pressure was mounting on Theresa May following her willingness to consider the extension of the Brexit transition period.
A potential leadership challenge is an imminent and growing risk for the pound, one that could prevent sterling from venturing much beyond $1.30 over the coming sessions. This is not the first time that the pound has tumbled on concerns that the PM won’t make it to the finish line. However, it is an extremely risky strategy to oust the PM at this late stage in Brexit talks and this could prove to be her only solace.
US Dithering Shows Unwillingness to Act vs. Saudi Arabia
Oil was little moved on Monday, despite risks stacking up. Watch and wait is the current mantra of the market as the as the pressure mounts on Sabia Arabia, the central bank of oil, to come clean over Jamal Khashoggi.
The White House’s dithering highlights the unwillingness of the Trump Administration to take any meaningful action against Riyadh, just a few weeks prior to the US Iran sanctions coming into play. This is hardly surprising given that Saudi Arabia is often considered the stabiliser of oil production given its ability to ramp up output.
This slack in production is allowing Saudi Arabia to cover shortfall from the US sanctions on Iran due to begin in two weeks. A veiled threat of using oil as a weapon is essentially tying the US’s hands. Investors are watching and waiting for the next chapter before positioning themselves accordingly.
Meanwhile, the Saudi’s are expected to drag out any investigation, ensuring that none of its leaders, particularly Prince Mohammad bin Salman, are implicated. Therefore, there could be a long wait now until we see anything more concrete.
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