16th September 2019
A rare jolt of Brexit positivity hit the City on Friday as the pound and banks were boosted by momentum gathering behind efforts to strike a compromise deal. Sterling capped its best week against the dollar since May by hitting a near two-month high, lifted by rising hopes that no-deal can be avoided. It burst through the $1.24 mark after the first face-to-face meeting between Boris Johnson and European Commission president Jean-Claude Juncker was announced and a report claimed Northern Ireland’s DUP was softening its stance. The Prime Minister insisted there was “a rough shape of a deal to be done” as traders turned their attention to his “working lunch” with Mr Juncker on Monday.
The pound rallied as much as 1pc to $1.2478 and jumped above €1.12 against the euro. Sterling has now clawed back more than 4pc of its value against the dollar since sinking to a three-year low in early September, lifted this week by receding no-deal fears and stronger-than-expected UK growth data.
Stocks most exposed to the UK economy enjoyed their best performance in seven months, lifted by renewed hopes of a deal. The FTSE 100 gained 22.7 points to close at 7,367.4 points.
Oil Surge
For oil markets, it’s the single worst sudden disruption ever. Brent prices spiked early Monday after a strike on a key facility cut Saudi Arabia’s production by half, pulling some 5% of world supply off the market. Saudi Aramco lost about 5.7 million barrels per day of output after several unmanned aerial vehicles on Saturday struck the world’s biggest crude-processing facility in Abqaiq and the kingdom’s second-biggest oil field in Khurais. Saudi Arabia is likely to restore almost half the oil production lost, though a full resumption may take weeks. The Trump administration is ready to deploy the nation’s emergency oil reserves and help stabilize markets if needed.
Petrol prices are expected jump at least five pence per gallon in the wake of surprise missile attacks on crucial Saudi oil refineries, with further hikes in the pipeline if emergency engineering works cannot contain the threat to global energy supplies. Secretary Michael Pompeo blamed Iran for an attack on a Saudi Aramco oil facility, which affected half of Saudi Arabia’s oil output. In a series of Tweets, Pompeo cited the country’s support for Houthi rebels in Yemen, who claimed responsibility for the attack, and said the United States would “ensure that energy markets remain well supplied and Iran is held accountable for its aggression.”
Market Open
Oil prices soared and the yen climbed after the strike on the heart of Saudi Arabia’s oil production increased geopolitical risk concern. News of the devastating attack on the world’s largest crude exporter also sent currencies of commodity-linked nations higher, including the Norwegian krone and the Canadian dollar. Treasury futures rose and U.S. equity index futures opened lower. U.S. stocks finished last week mixed as Treasury yields jumped to six-week highs. Equity indexes in Europe and Asia closed the week in the green, thanks to easing trade fears and a new round of central bank stimulus. Markets in Japan are closed Monday for a holiday. Saudi Arabia stocks declined, with the Tadawul All Share Index falling as much as 3.1% after the attacks.
Coming Up This Week…
In this week’s rate-decision bonanza, the U.S. Federal Reserve, Bank of England, and Bank of Japan all set monetary policy. The EU Parliament meets as the Brexit impasse rumbles on. Monday China releases August industrial production and retail sales data that will give a glimpse into the state of the world’s second-largest economy amid the protracted trade war. The Federal Reserve is widely expected to lower U.S. interest rates in response to slowing global economic growth and muted inflation when it meets Wednesday. Chairman Jerome Powell will hold a post-decision press conference. The BOJ will unveil its rate decision on Thursday, followed by Governor Haruhiko Kuroda’s briefing. Australian jobs will be closely watched on Thursday. And brace for surging volatility on quadruple witching day Friday when the expiration of futures and options on indexes and stocks occurs on the same day.
FTSE 100 Trading Signals, Forecast and Prediction
The futures prices for the FTSE 100 have climbed back up from their lows after the drone strike on the oil infrastructure in Saudi. The rising price of oil will also help the FTSE 100 generally, as Shell and BP are large constituents of it. The bulls have managed to keep the price above the 7300 level for the moment, however the S&P has broken below 3000 again and if the bears were to keep it there then a drop down towards the 2940 area looks possible. That would in turn weigh on the FTSE 100 which would likely drop down towards the bottom of the 10 day Raff channel at 7240 for the moment. Talking of Raff’s the Dax and SP dipped below their 10 day channels as you can see in the images below, however they have subsequently climbed back above. We may well be on for a bull Monday if the buying pressure remains.
I am thinking that we will see a rise towards the 7394 fib level, 7400 round number and the R2 level at 7408 today. If the bulls were to break above 7408 then there is 7424 and then the top of the 10 day Raff channel at 7454 to test. A lot will depend on cable and the oil price today. Traders will also be looking to see how much impact the attack has on Saudi oil output, at the moment they are saying they have lost half their capacity but if its not as bad as feared then we may well see oil stabilise a bit. Trump has also said that they will utilise emergency reserves.
if the bears were to break below the 7308 overnight lows then a drop down towards the 7240 level mentioned above. I am thinking that now we are back above the 200ema on the 30min at 7324 this will remain as support for the moment. The SP 2 hour chart has gone bearish though and has resistance at 3015 for the moment, so this area will be key for the bulls to push through. The FTSE daily chart remains bullish though, and we have 25ema support at 7274. Certainly a mixed bag on the charts but I am thinking that we may well see a push towards the 7400 level today.
So in summary, cautiously bullish for today looking for that 7395 level.
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