Wednesday brought some welcome respite for global markets as relative stability in Asian equities (after Tuesday’s bloodbath in China) and reasonably calm European markets stand in stark contrast to what we saw yesterday, following Trump’s decision to escalate the trade dispute with China still further.
There were some notable headlines overnight.
For one thing, the ECB’s Nowotny was out talking about policy divergence and rate differentials (my most recent laborious discussion on that is here).
“What we also see, is that we have a development of the exchange rate that’s leading to a significant weakening of the exchange rate against the dollar,” Nowotny said in Vienna, adding that “that’s surely primarily a development of the interest-rate policy, where the ECB wants to keep its rates on hold at least until summer of next year, while the U.S. has announced rate hikes, so that the difference between European and U.S. rates becomes stronger.”
Right. And remember, this is what fucked Bill Gross recently:
And those comments right there sent the common currency briefly lower:
For his part, Francois Villeroy (who last month specified that the first ECB hike would come “quarters not years” after the end of APP) said “the first interest-rate rise could come as of the summer of 2019”. That’s from a letter to French authorities and it would appear to be at least partially at odds with the general consensus that Draghi’s “at least summer 2019” rates guidance pushes a hike into the back half of next year.
Villeroy would later “clarify” to say his comments are “in line” with the GC’s “unanimous” decision from last week.
Meanwhile, it looks like Iran may be coming around to the reality that it’s going to be forced to acquiesce to some manner of production increase deal at the OPEC meeting. The begrudging acceptance comes even as Zanganeh continues to rail against Trump. Here’s what he said on Tuesday in Vienna:
Oil is not a weapon — it is not a political tool to be used against some countries, producers or consumers. OPEC is not a political organization and I believe it is necessary for OPEC to support this idea that the market should be depoliticized and condemn any use of oil as a weapon or as a tool against some countries. President Trump thinks that [he] can order OPEC and instruct to OPEC to do something… It’s not fair, I think, and OPEC is not a part of the Department of Energy of the United States.
Again, that’s all part and parcel of an Iranian effort to convince the cartel (and Russia) to resist bowing to Trump’s Twitter feed and to avoid making decisions based on gas prices in the U.S. and the presumed effect those prices will ultimately have on negating the benefits of Trump’s tax cuts for consumers.
But on Wednesday, reports suggest Iran may be prepared to accept an increase under conditions:
Zanganeh would go on to criticize Trump some more, asserting that he (Trump) is to blame for high oil prices while it is actually Iran that doesn’t want prices to be too high.
“[The] U.S. is creating market instability by increasing political tensions”, Zanganeh said in Vienna, adding that “de-politicizing [the] oil market is vital for stability [and] U.S. unilateral actions threaten companies and banks active in [an] market.”
That’s all fine and good, but at the end of the day there’s only one voice that really matters here and it’s that of Khalid Al-Falih, who said simply this about an hour ago:
- SAUDI ENERGY MIN: OF COURSE THERE’LL BE OPEC AGREEMENT FRIDAY