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Market Morning: Wild Week Behind Us, Wild Week Ahead? And A Saudi Pickle

Rafi Farber

The Week Ahead After the Wild Week Behind

After a wild week on Wall Street last week, let’s sit back, relax, and see what’s on tap for this week on the economic calendar. Of note, Monday begins with retail sales. Tuesday has a somewhat obscure datum, that of foreign buying of T-bonds. This is usually overlooked but it could have special significance this week as it would gauge the foreign demand for a treasury market that has been under significant pressure of late. It won’t get headlines, but it will be an important number under these circumstances. On Wednesday, housing starts and the 30Y mortgage rate, which should float higher with treasury rates. At a certain point it will slow down the housing market if it hasn’t already. Thursday has jobless claims, which have been trending down ever since the financial crisis bordering 200K. And finally, on Friday we have existing home sales.

Italy Brussels Showdown Nears

Rome will submit its draft budget to Brussels this week and it’s not going to be pretty. The question will be not whether the people at the European Central Bank will be happy with it, but how upset will they be and how roiled will the Italian BTP market get? On the one hand Italy’s populist coalition government believes that spending more money is the only thing that will keep their economy afloat. On the other hand, Brussels is directly financing the Italian government and they’re getting tired of doing this. On the third hand, spending way beyond their means hasn’t worked so far, but who knows? Maybe it’ll finally work now, because why not?

What to do: European financials could have a rough week if relations between Rome and Brussels blow up. (NYSE:HSBC) (NYSE:DB) (NYSE:CS)

President Trump Is In a Saudi Pickle After Alleged Khashoggi Murder

It seems obvious to most observers that Jamal Khashoggi, a US resident and columnist for the Jeff Bezos-owned Washington Post and harsh critic of the regime of impetuous Saudi Arabian Crown Prince Mohamed bin Salman, was murdered by the Saudi Arabian government. President Trump has threatened “severe punishment” against Saudi Arabia if it turns out that Khashoggi was killed in the Saudi Arabian consulate in Turkey, where he was last seen. Turkey claims they have tapes of his murder. Bin Salman denies he had anything to do with it, and is now threatening “retaliation,” whatever that means, if any measures are taken against it in response to the alleged murder. Trump has also said that the US will keep selling the Saudis more weapons because that’s how things are and that’s how they’ve been since the 1970’s, and Trump really doesn’t like Jeff Bezos anyway.

What do do: Oil (NYSEARCA:USO) could be the scapegoat here, and bin Salman is dangerous and unpredictable. Any unpleasantness between him and Trump could crank oil prices higher.

Brexit “Crunch Time” But Probably Just the First Crunch of Many Crunches

Brexit “crunch talks” will be held this week, where bureaucrats from both sides will discuss crunchy topics such as borders and trade. United Kingdom Brexit secretary Dominic Raab duked it out with European Union chief negotiator, Michel Barnier on Sunday, though nobody knows exactly what was said, but it probably had something to do with Ireland. The EU does not want a hard border between the UK and Ireland, which remains a Eurozone and European Union member. The UK seems to want to use the threat of hard border with Ireland to gain trade concessions. Trade talks are scheduled for mid November if this issue ever gets resolved. Expect the UK’s FTSE100 to wobble up and down with even more extreme volatility given the specific situation there coupled with the spike in global volatility over the last few days anyway. The real deadline is March, when Brexit is going to happen, agreement or not. All these other “deadlines” are mostly just headline generators.

What to do: Bad headlines will tank British stocks. Good headlines will levitate them. (NYSEARCA:EWU)




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