Geopolitics & Wild Cards: Full Week Ahead Preview

Well, geopolitics is back in the spotlight to start the week. That’s thanks in no small part to an unprecedented royal purge in Saudi Arabia, where Mohammed bin Salman is in the middle of a second push to consolidate power, this one far more aggressive than what we saw over the summer.

The most notable “casualties” (and I use that term figuratively, although some folks were killed on Sunday in a helicopter crash which will undoubtedly be seen as suspicious by anyone of a conspiratorial predisposition) were Prince Miteb bin Abdullah whose ouster as chief of the National Guard effectively means MbS now controls the kingdom’s entire security apparatus and of course Prince Alwaleed bin Talal, an international personality, famed global investor, and occasional fly in Trump’s Twitter soup. If you haven’t read our recap of Saturday’s events, you should at least skim it here.

Of course contrary to what you might have heard from your favorite pundit, geopolitics was never far from the minds of serious investors. Just ask them – Barclays did:

It’s as yet unclear what the fall out from the Saudi situation will be in global markets. The initial knee-jerk was lower in Saudi shares, but by the end of the session on Sunday, a remarkable reversal resulted in a green close:

Shares of Kingdom Holding (owned by Prince Alwaleed) didn’t recover, but it’s worth noting that the stock was already woefully underperforming the broad market on the year:

Oil knee-jerked higher above $56 to start the week, but you could just as easily chalk that up to expectations that MbS will back an extension of cuts as you could to a thesis around “turmoil”:

As Barclays notes, “pivotal USD risks [are] out of the way, including the appointment of the next Fed chair, more clarity on the US tax plan and key US data,” which leaves markets to “re-focus on idiosyncratic stories.” Saudi Arabia certainly qualifies, but don’t forget that Trump is loose in Asia. “We expect President Trump’s tour of Asia to focus on the North Korean nuclear threat,” Barclays adds, in their week ahead preview, before noting that “while he’ll likely highlight a unified front with his Asian allies on the topic, we highlight risks that he could also reference the recent Treasury report, which named China, Japan, Korea, and India as countries warranting special attention on their currency practices.”

Of course really, there’s no telling what he’s going to do. So far, he’s given an absurd speech to some soldiers, golfed with Abe, and tried on some new trucker-style hats emblazoned with the slogan “Donald and Shinzo make alliance even greater.”

But it’s worth noting that his “samurai warriors” assessment of Japan’s willingness to shoot down missiles certainly betrays a rather hawkish predisposition and this headline just hit which underscores the still-simmering trade tensions:

• TRUMP: TPP AGREEMENT ‘NOT THE RIGHT IDEA’

Here’s the projected path of the hurricane along with any relevant trade statistics that he might try to throw in people’s faces:

(Barclays)

We’ll get the RBA on Tuesday and although that’s not generally expected to produce any fireworks, you never know – remember, we’re living through a global currency war disguised as a coordinated easing regime, so any perceived policy divergence will be dealt with accordingly by FX traders. Here’s Goldman’s brief take:

• Australia, RBA Cash Rate. GSe +1.50%, consensus +1.50%, last +1.50%. We expect the RBA to reiterate its neutral policy stance, and will be looking for incrementally more positive language on the labour market and the exchange rate. On Friday’s Statement on Monetary Policy, we expect the RBA to upgrade its assessment of the labour market while leaving its inflation forecasts broadly unchanged.

Remember: inflation recently “disappeared into the bush.”

Also notable will be China credit data. This is for October, so it will be interesting to see the extent to which it was deliberately juiced (or not) considering Beijing knew the Party Congress would be in the books by the time the data was tallied and released. Also look for CPI and PPI data from China.

Oh, and here are three potential wild cards for you:

• Mueller
• Iran reaction to Saudi purge
• potential Erdogan freakout

We’ll leave you with the full calendar from BofAML…