By Jan Faure
Global markets were on edge in September after Saudi Arabia’s oil facilities were damaged in a drone attack. The immediate and severe impact on oil prices highlighted how sensitive global oil prices are to supply set-backs.
Blame for the attack was placed firmly with Iran. Oil prices initially jumped 20% as the attack disrupted 5% of world’s crude production. A 20% oil price move for a 5% supply disruption highlights the sensitivity of oil prices to supply shocks. Energy analysts predict oil prices could more than double from current levels were Saudi Arabia and Iran to go to war.
Oil prices have subsequently returned to levels prior to the attack as Saudi Arabia restored production. The Middle East region still remains a significant risk to oil (and global economic) stability due to serious tensions between Iran and Saudi Arabia.
Besides the on-going US-China trade war, President Trump didn’t have an easy month. US House Democrats launched an impeachment inquiry against President Trump following a whistle blower report which alleged that Trump attempted to coerce Ukraine into pursuing a corruption investigation into Democratic rival Joe Biden and his son. Joe Biden happens to be the Democrat front-runner for the 2020 US presidential election.
Markets were briefly spooked on Friday the 27th September following a report that the Trump administration may be looking to limit Chinese companies from trading on US exchanges. Chinese companies listed in the US have been under scrutiny for some time over the quality of their financial reporting. Congress is looking to pass legislation aimed at forcing US-listed Chinese companies to comply with auditing rules in the US. Failure to submit to regulatory oversight would result in delisting on US exchanges.
There is a degree of merit to the argument that if Chinese companies want to reap the rewards of international capital markets, they need to comply with international standards of financial disclosure and transparency. Chinese companies have a large presence in US stock markets. Around 200 Chinese companies are listed in the US with a market capitalization of approximately $1.2 trillion.
The aforementioned report was played down by the White House as it comes at a sensitive time for US-China relations. The two countries are set for talks on their lengthy trade dispute on the 10th and 11th October in Washington.
Finally, Brexit continues to be a complete and utter shambles. Since the 2016 referendum, Brexit has seen two UK prime ministers resign while the current PM, Boris Johnson, has repeatedly promised “to get the job done do or die” by the 31st October deadline. How Boris Johnson plans to achieve Brexit by the 31st is a mystery. There is no new EU deal on the table for parliament to vote on, while a no-deal Brexit has been outlawed by parliament. A further extension of the Brexit deadline now seems inevitable unless Johnson can pull a rabbit out the hat before October 31st.
Global equity markets were mostly lower in August while bonds and listed property benefitted from lower interest rate expectations.
GLOBAL INDICATORS: Local reporting currencies