Oil Prices Spike on Saudi Attack

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  • September 25, 2019

Crude oil prices rose up to 20% overnight on Sunday as traders attempted to price in a terrorist strike on Saudi oil infrastructure, impacting half of the country’s production capability. This equates to approximately 5% of global oil supply. The attack, using relatively low cost and unmanned drones, was claimed by the Houthi rebels although the blame was rapidly assigned to Iran. The immediate threat to supply from the attack will be dependent on how quickly the Saudis can repair the damage; however, a risk premium is likely to remain in the market for some time now there are heightened geopolitical concerns. The ease at which such a large amount of production can be damaged in the notoriously volatile region will have concerned oil traders, and with little information available on the current damage or risks going forward, the oil price is likely to remain unstable for some time. 

European Central Bank restarts Quantitative Easing

The European Central Bank (ECB) unleashed a new round of monetary stimulus last week in an attempt to revive the slowing Eurozone economy and persistently low inflation. The committee announced that it was cutting its deposit rate from minus 0.4% to minus 0.5%, a record low, and would restart its quantitative easing (QE) programme. Under QE, the central bank will buy €20bn of bonds every month from November. This was stated as being open-ended and would last until inflation expectations came close to the 2% target. Furthermore, the ECB president Mario Draghi lashed out at nation governments, saying that monetary policy has reached the limits of its effectiveness and that fiscal policy needed to take some of the slack. The comment appears to be mainly directed at Germany where budget surpluses continue to be seen, and there is plenty of room to increase government spending or cut taxes.

Chinese Trade Data

Last week, Chinese import and export data for August came in significantly below expectations. A depreciated Renminbi and bulk buying ahead of the September tariff hikes were expected to support exports, although the actual data pointed to a fall. Furthermore, soft import figures for manufacturing components also suggested that the weak economic trend is likely to last for some time. While last week the central bank acted by cutting its reserve requirements, freeing up more funds for lending, this trade data suggests that more stimulus may be on the cards. However, with so much stimulus deployed over the last several years and the accelerating build-up of debt, the Chinese authorities may soon reach a point where further actions have little impact or the risks from additional debt is too high. Nevertheless, a fresh round of stimulus would still be received well by markets and would likely support the Chinese economy over the subsequent months.

Market Data

  % 1w* % 1m*
UK -0.31% 3.70%
US -0.85% 3.29%
Europe ex UK -0.85% 2.77%
Japan 0.06% 3.82%
Emerging Markets -0.81% 3.18%
Oil 6.33% 7.31%
Gold 0.72% -3.12%

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Posted By Will Dickson

Chief Investment Officer Will Dickson is a Chartered Wealth Manager as part of the Chartered Institute of Securities and Investment (CISI) qualification scheme. This recognition was obtained following an MSc in Finance and Investment from the University of Exeter, and an Accounting and Finance BSc from the University of Bath. Will’s exceptional talent is recognised by CityWire’s Wealth Manager, having been named as one of the UK’s Top 30 investment managers under the age of thirty for the last three years. Will manages and oversees P1’s range of investment portfolios. Working with the Investment Team, Will shapes the investment policy and fund selection for our Passive, Hybrid and Ethical and Sustainable portfolios. In conjunction with managing the fund portfolios, he oversees and our AIM Inheritance Tax and Tier 1 Investment Visa equity portfolios. Will has joint written articles with P1’s Head of Research, Dr Rayer. Their article “Hypothesis: Risk, like Mass and Energy, can neither be created nor destroyed” featured in the CISI’s The Review of Financial Markets. In addition to contributing to articles with Dr Rayer, Will often delivers P1 CISI Endorsed lectures to Independent Financial Advisers. You can see Will’s take on weekly investment news here.