INSIGHTS

Stefano Sciacca

Fri, Jun 21


KYLIN TALK | Stock Watch 23.06.19

Commodities rally: Buy the geopolitical turmoil

Gold and oil prices have lifted-up as global trade war escalates and geopolitical tensions between the US and Iran feed general uncertainty also confirmed by central banks’ broad dovishness.

 

Gold hit a 6-year high (+10% over the last month) this week as investors seek safe assets especially in case of increasing hostility in the middle East. The precious metal gains when dollar and US Treasuries weaken, while the likelihood of US-China to reach some sort of agreement along with elevated tension in the Oman Gulf seem indicating the rally to continue in the weeks ahead.

 

Oil goes up (11% in two weeks) mainly because of conflicts fears. While Iranian military force released the video of drone-downing, Trump tweeted “Iran made a very big mistake”, suggesting a soonish extra troops to be deployed in the area. The “black gold” surge started following the 6 tankers attacks in the region, which Iran has denied responsibility for. Geopolitical experts claim this oil run dramatically increase the prospects for international conflicts, especially after the Iranian government sending a letter to the UN saying they would do whatever it takes to defend their territory. President Trump reportedly gave the order to attack Iran Thursday night in response to its downing of a US drone. The US went so far as to allocate planes and ships into position before the strike was called off. On the other side, Sardar Hajizadeh, commander of the Air Force's Corps of Air Force, revealed that Iran refrained from shooting down an American P8 Spy Plane flying nearby which Iran said had 35 people on board. In the meantime, Britain and India announced they would be deploying UK special forces to the Gulf to protect UK assets in the region and a major Indian naval deployment in the region.

 

 
 

Jerome Powell, the FED governor, sounded like an interest rate cut would be very likely to happen as soon as next month, pushing investors to pull their money out of US Treasuries. The Fed has to cut rates 2-3 times to offset the effects of the trade war (and many believe the cuts have already been priced in the recent equity market rally), but what investors wonder is what would be the measure to be implemented in case of a “hot war” with Iran. Unfortunately, output data missed expectations, as the US Services PMI (50.7 vs 50.9 in May) and US Manufacturing PMI (50.1 vs 50.5 in May) both edged down amid weakening labour market and -*deteriorating business optimism.

 

Next week our macro spotlight will be on?

Thursday:

  • Economic Sentiment Indicator & Business Climate Indicator June 2019
  • Gross Domestic Product, 1st quarter 2019 (third estimate); Corporate Profits, 1st quarter 2019 (revised estimate) – US

 

Friday:

  • Flash estimate inflation euro area June 2019
  • Personal Income and Outlays, May 2019 – US
  • Balance of payments, UK: January to March 2019
  • Consumer trends, UK: January to March 2019
  • Business investment in the UK: January to March 2019
  • GDP quarterly national accounts, UK: January to March 2019


Chart of the week

 

 

 

Fact of the week

The Federal Aviation Administration banned all U.S.-registered aircraft from flying over Iranian airspace, and airlines worldwide are following the guidance

 

Quote of the week

“While the Islamic Republic does not seek war, it reserves its inherent right, under Article 51 of the United Nations Charter, to take all appropriate necessary measures against any hostile act violating its territory, and is determined to defend its land, sea and air”

Iran's ambassador Majid Takht Ravanchi to the UN.


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