by Pinchas Cohen
Key Events
The crackdown on corruption in Saudi Arabia appears to have sent the price of crude oil soaring. The sweeping arrests on Saturday included 11 princes, three dozen senior officials, including the commander of the national guard, the economic minister and the kingdom’s leading international financier.
Opinions on the move range from revolutionary reform, to high-stakes power consolidation, to simply reckless. An event that involves so many influential individuals in such a highly restricted, religious environment is likely to provoke cleric-fueled riots. Historically, this type of civil unrest in oil producing countries spooks institutional investors, making them fearful of an upside risk. So they hedge, which creates demand, pushing up oil prices. Naturally, speculators follow, adding their demand into the mix, pushing prices up yet further.
Global Financial Affairs
Though oil prices weren't a behind-the-scenes factor that led to Saturday's Saudi crackdown, nonetheless the commodity's price is clearly moving higher. This dynamic—after multiple failed efforts by OPEC to rebalance the oil market, whose prices were suppressed by US shale production—could now be assisted by the dramatic arrests in the desert kingdom. Yesterday, the price of oil reached an intra-day high of $57.59, the highest point for crude since July 2, 2015.
In response, energy shares rallied 2.29 percent in the US, leading the S&P 500 to its 51st record of the year. The NASDAQ also hit a new high.
Chip maker Broadcom (NASDAQ:AVGO) has made a hostile, $105 billion takeover bid for rival Qualcomm (NASDAQ:QCOM) in what would be the largest tech deal ever. Technology shares rallied on the approach, offsetting weakness in telecom shares after merger talks between Sprint (NYSE:S) and T-Mobile US (OTC:DTEGY) failed.
Eurozone Composite PMI indicated strong momentum at the start of the 4th quarter, boosting the Stoxx Europe 600.
It seems that the global economy is lining up to support record stock prices worldwide and in the US as both fundamentals and technicals point higher. The global economy has been on the rise since last year; the US economy bottomed during the summer and has been expanding since then. Corporate earnings have been positive, and the balance of supply-demand is clearly tilted to demand. The icing on the cake: the last couple of weeks seem to have been the most muted for President Donald Trump.
This morning, positive earnings by Japanese companies, alongside a weaker yen, pushed the Nikkei 225 to almost 23,000, its highest point since January 1992, the result of investors rotating funds out of safe havens and into roaring equity markets.
Expectations of demand for electric vehicles, a China pollution crackdown and an outlook for economic growth spurred metals higher, boosting Australian shares to their highest in a decade.
The RBA highlighted confidence in the country's investment outlook, though the Australian central bank maintained its growth forecast. The Aussie dollar first rallied on the confidence but pulled back on the flat growth forecast.
New Zealand’s new, center-left government kept the central bank’s existing inflation target. The NZD rallied in relief the new government won’t predicate tightening on a higher target. However, the currency couldn’t hold gains against dollar strength.
Up Ahead
- China’s October foreign reserves are released on Tuesday.
- U.S. consumer sentiment probably cooled in early November from a more than 13-year high. The University of Michigan’s report is out on Friday.
- OPEC releases its World Oil Outlook.
- Argentina, Mexico, New Zealand, Malaysia and Thailand also have monetary policy decisions this week.
- The European Commission’s chief Brexit negotiator Michel Barnier and U.K. Brexit Secretary David Davis resume talks.
Market Moves
Stocks
- Japan’s Nikkei 225 Stock Average climbed 1.7 percent to the highest in about 26 years.
- The MSCI Asia Pacific Index jumped 0.9 percent to the highest in about 10 years.
- The Stoxx Europe 600 Index advanced 0.2 percent as of 8:16 London time (3:18 EDT), heading for the highest close in more than two years.
- The U.K.’s FTSE 100 increased 0.1 percent to the highest on record.
- Germany’s DAX climbed 0.3 percent to the highest on record.
- The MSCI Emerging Markets Index jumped 0.6 percent to the highest in more than six years.
- S&P 500 Futures gained 0.1 percent.
Currencies
- The Dollar Index advanced 0.35 percent, the biggest since October 26.
- The euro fell 0.2 percent to $1.1588, the weakest in almost 16 weeks.
- The British pound dipped 0.1 percent to $1.316.
Bonds
- The yield on 10-year Treasuries jumped one basis point to 2.33 percent.
- Germany’s Germany 10-Year yield gained less than one basis point to 0.34 percent.
- Britain’s 10-Year yield increased less than one basis point to 1.259 percent.
- Japan's 10-Year yield advanced one basis point to 0.032 percent.
Commodities