OPEC panic
Oil is rallying marginally as Saudi Arabia expressed interest to cut supply in December. Despite the USA sanctions on Iran that started on 5th November, crude oil prices have fallen. Output was expected to tighten, but supply actually increased from the US, Saudi Arabia and Russia, and the US surprisingly approved provisional waivers to eight buyers of Iranian oil. The result was a net increase of crude. The drop in prices and glut in output has some OPEC member panicking, not waiting for 6-7 December meeting in Vienna.
Europe dithers
Euro area industrial production contracted in the last quarters. The German auto sector led the weakness, as Euro area purchasing-manager-indices moved sharply lower. Italy’s growth seems to have stalled: an indirect effect of Rome’s anti-establishment government fiscal disagreement with Brussels has been a restriction of credit in Italy. EUR/USD failed to break the midterm downtrend and is now heading toward 1.1143 support. We little strength in European equities due to the weaker Euro. In the UK, the resignation of former transport minister Jo Johnson has highlighted the obstacles faced by Prime Minister May. A Brexit agreement that Brussels, her government and the House of Commons is becoming increasingly difficult to visualize. GBP/USD dropped after failing to clear 1.3140 (16 month low): shorts are eyeing minor support at 1.2785.
China flexes
Despite growth deceleration and trade tensions with the USA, China’s domestic activity remains strong: Alibaba’s Singles Day sales hit a new record of over $30 billion. China’s export growth in USD was higher than expected in October, with imports also surprising to the upside. From the $200 billion of US-imposed China tariffs employed in September, approximately $70 billion are on consumer goods, but it will take time for the supply chain to pass these on to consumers. The stronger greenback provides wiggle room for exporters to absorb price increases from higher tariffs
