And finally... here’s Adam Vaughan on the prospect of an Opec production cut:
The euro has sunk as low as $1.124 against the US dollar today, the weakest since June 2017.
Bart Hordijk, Market Analyst at Monex Europe, blames “four apocalyptic horseman”:
“Brexit, Italy, slower growth and a cautious European Central Bank are the four apocalyptic horsemen currently chasing the euro to its doom - well, at least to a 17-month low against the dollar.”
Euro Slides to 16-Month Low, Pound Sinks as EU Risks Reignite pic.twitter.com/y8l1DWj6lT
— Alex Goncalves (@alexdgn) November 12, 2018
UK military equipment manufacturer Babcock has launched a counter-attack of its own today.
Babcock has denied being in financial trouble, and accused an analyst group of spreading “false and malicious”. More here:
Here’s the full story on the potential US menthol cigarette crackdown:
Oil analyst Olivier Jakob of Petromatrix argues that Saudi Arabia is right to be considering output cuts in 2019 (on top of the planned reduction in December).
He says (via Reuters):
“The balances for 2019 do show, especially in the first half of the year, that there will be significant global oversupply,”
Donald Trump might not be best-pleased by the prospect of Opec cutting production in 2019.
The US president has been lobbying the cartel to raise production, to avoid gasoline prices rising in America.
Last week he declared, with typical modesty:
“If you look at oil prices they’ve come down very substantially over the last couple of months.
“That’s because of me.”
In a sense Trump is right -- oil had risen because America imposed tough new sanctions on Iran. But Washington then granted a waiver to eight countries -- China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea -- allowing them to keep buying Iranian crude. This helped pull the oil price back down again, as Iran’s stocks were effectively back on the market.
Ricardo Evangelista, senior analyst ActivTrades, agrees that the pound is being hit by political instability (again):
Cable [the £/$ exchange rate] is down almost 1% on the day, in what appears to be a reaction to reports pointing to Prime Minister Theresa May’s inability to gather the necessary support within her cabinet for a Brexit deal.
As the struggle within the British camp intensifies, so does the chance of a no deal Brexit and perhaps of an earlier general election. Both scenarios present more downside risk for sterling.
After a positive start, Britain’s FTSE 100 has now dipped into the red - joining the other major European indices.
Tobacco stocks have been hit by reports that the US might ban menthol cigarettes; British American Tobacco has slumped 9%, with Imperial Brands down 4%.
Mining stocks and oil producers are up, though.
BP and Royal Dutch Shell have both gained over 1.5%, on the prospect of an Opec production cut pushing up prices.
The pound is on track for its worst day in almost two months....
Trade-weighted sterling is now more or less where it was in the days after the Brexit vote. pic.twitter.com/8IcS7k1HjC
— Andy Bruce (@BruceReuters) November 12, 2018
Brown: World leaders aren't ready for next crisis
Former UK prime minister Gordon Brown has warned that the world is not well placed to deal with the next financial crisis.
Phillip Inman, the Observer’s economics editor, reports:
Politicians and central bankers will be denied the tools they used in 2008 when the next financial crisis hits the global economy, Gordon Brown said this morning, arguing that governments will need to respond by increasing debt levels and taxes even more than they did last time round.
The high levels of cooperation among senior policymakers across the world seen a decade ago have largely disappeared, which is a damaging situation when the global economy will need a strong fiscal stimulus following the next financial crash top avoid a slump. Speaking at a TUC conference to discuss the implications of the financial crisis, the former UK prime minister and an architect of the global cooperation a decade ago, said the four pillars to the 2008 rescue were no longer in place.
Brown pointed out that:
-
The G20 no longer represents global economic power in the way it was in 2008.
- The rise of protectionism is already restricting trade and undermining the free trade needed to boost all nations following a crisis.
-
Central banks are not able to provide a monetary stimulus through cuts in interest rates; this is likely to still be the case many years from now.
- Governments have denied themselves room to provide a stimulus through a misguided focus on high levels of debt and the use of taxpayer funds.
He said: “When you have a Keynesian problem, it needs a Keynesian response.”, adding:
“You cannot talk about a globally managed system. The Financial Stability Board has no power, it can only urge change, it is only by invocation that it can try to bring countries to change their policies.
The G7 was out of date in 2008 and was superseded by the G20, Brown said, adding that the G20 is out of date.
“So the decision-making framework for the next 10 years will need to be different to the one for the last 10 years.”
He rejected proposals gaining popularity on the left in the US for a form of “responsible nationalism” that recommends pulling back from global coordination in favour of addressing national economic problems of stagnant wages and living standards.
He said unilateral action would fail and only a global leadership could rescue economies from a financial crisis.
Great speech by Gordon Brown at the joint @TUACOECD & @The_TUC conference in London. We are sleepwalking towards the next financial crisis with limited room for maneuver. How will we deal with it? pic.twitter.com/CdqX7NvcdA
— Thomas Carlén (@TCarlen) November 12, 2018
Pound hit by Brexit worries
Sterling is having a bad morning as Theresa May’s Brexit plans take another pummelling.
The pound has slumped by 1.5 cents this morning to $1.283, its lowest level since November 1, in the face of yet more bad headlines for the PM.
May is still struggling to agree the terms of a Brexit agreement that is acceptable to both hardline eurosceptics in her party and those who supported Remain, and favour a soft exit.
So we have former foreign secretary Boris Johnson aghast that the EU might still have control of Britain after Brexit, and on the other hand former education secretary Justine Greening warning that parliament should block the plan because Britain will lose vital influence and credibility otherwise.
The government still hasn’t squared the Irish backstop circle either, meaning Northern Ireland’s DUP is still threatening to pull their crucial support.
I'm told that the #Brexit Withdrawal Agreement is now at least 5⃣0⃣0⃣pages long. Good luck if you have to print that out (and by that I mean me).
— Adam Fleming (@adamfleming) November 12, 2018
The opposition Labour party aren’t doing much better either, with shadow Brexit secretary Keir Starmer arguing that the whole thing can be stopped -- something leader Jeremy Corbyn doesn’t accept.
This has left City traders despairing, rolling their eyes, and selling both the pound and the euro....
#EURUSD has dropped through 1.13 and now trading at 1.1270 the lowest level since June 2017
— IGSquawk (@IGSquawk) November 12, 2018
Neil Wilson of Markets.com points out that any official oil output cut will require co-operation between Opec members, and Russia too.
As mentioned earlier, Moscow may not be persuaded that they should cut production to get the oil price up again.
He writes:
“Saudi Arabia has announced a cut to December crude output, a sign that it’s prepared to curb production to stem the decline in oil prices. The country will pump 500,000 barrels a day fewer next month than it has been in November
Brent rallied from 7-month lows at just above $69 to trade above $71.50. Having found support at $59.30, US crude has firmed to $61 but is struggling hold that handle.
In the short term this is a positive for oil, but we must question the impact longer term unless it’s the sign of more to come from OPEC.
Saudi Arabia cannot act alone though – realistically it needs to pull together OPEC allies and, critically, Russia to curb production if it wants prices to hold. The language from Russia suggests it is not ready to follow the Saudis yet.
Updated
In other energy news, UK power station operator Drax is facing a legal challenge today to its plans to build a new gas power station.
My colleague Adam Vaughan explains:
ClientEarth, which has repeatedly defeated the government in court over its air pollution strategy, has submitted an objection to the planning inspectorate over Drax Group’s proposed 3.6GW plant in North Yorkshire.
The intervention is the first by the lawyers against a gas project in the UK. Sam Hunter Jones, a lawyer at the group, said it had acted because the Drax scheme marked a tipping point in the amount of new gas planned by energy firms in the UK.
The UK has already given planning approval for 15GW-worth of large-scale gas plants, including at Eggborough, which is not far from the Drax site. Adding the Drax project would take the total to about 18GW, three times the 6GW of new gas the government estimates the country will need up to 2035....
We believe that if OPEC+ decides on cuts once again, it would initially be for the first six months of 2019, given that this is where our balance sheet shows the bulk of the surplus. @warrenpatCMDTY #OOTT #OPEC pic.twitter.com/2OCnbdjMyJ
— Marc-André Fongern (@Fongern_FX) November 12, 2018
Economist Intelligence Unit analyst Peter Kiernan believes oil producers are reacting to signs of slowing economic demand, and America’s growing shale oil industry.
“OPEC may decide to reduce output for 2019 based on concerns that, the loss of some Iranian supply notwithstanding, the fundamentals will weaken next year due to slower growth in consumption and strong performance in non-OPEC supply, led by US shale.
In June, Opec states and Russia agreed to increase output to keep the market in balance, but now they face the possibility of having to wind some of this growth back.
Russia isn’t a member of Opec, although it did attend last weekend’s Opec+ meeting.
And Russia may also need convincing that production cuts are needed.
The head of Moscow-based Lukoil has argued that the current oil price is “fairly high”
According to the RIA news agency, Vagit Alekperov has predicted the oil price will remain at its current levels until the end of 2018, and then stick between $70 and $75 per barrel next year.
In other words - why cut production?
More news flashes from the oil ministers meeting in Abu Dhabi:
No plans to break up #OPEC cartel says Saudi Energy Minister via State Media
— Jasper Lawler (@jasperlawler) November 12, 2018
Saudi EnergyMin Falih: Russia Happy To Continue Cooperation With OPEC Group
— LiveSquawk (@LiveSquawk) November 12, 2018
Naeem Aslam of Think Markets says Saudi energy minister Khalid al-Falih has succeeded in pushing oil higher:
Oil has firmly entered in a bear territory and the recent comments from the Saudi oil minister may actually support the market.
The minister has said that Saudi Arabia sees need to cut 1mb/d from October level. We are seeing investors taking advantage of the overselling of the oil price in the recent weeks and a corrective move is strongly on the card. The current momentum could push the oil price towards the $62.50 and a break of this would open the floor towards the next resistance of $63.20.
This talk about crude production cuts comes just days after oil plunged into a bear market.
As this chart shows, the cost of US crude has fallen by over 20% since the start of October, from $76 per barrel to just $60.
Saudi: We'll do whatever it takes
Newsflash: Saudi Arabia’s energy minister is speaking to the press again this morning, and dropping further hints that production will be reined in.
Khalid Al-Falih confirmed that Saudi will pump half a million barrels less in December, due to falling demand.
He then cites technical analysis, which apparently shows that production should actually be cut by one million barrels per day [global demand is close to 100m barrels/day]
*SAUDI OIL MINISTER SEES NEED TO CUT 1M B/D FROM OCT LEVELS
— Michael Hewson 🇬🇧 (@mhewson_CMC) November 12, 2018
Al-Falih then declares that oil ministers from Opec and beyond agreed yesterday that they must do “whatever it takes” to balance the market (ie, stop prices falling).
Saudi oil minister: OPEC+ to do whatever it takes to balance market https://t.co/NPDpKnKqYT
— ForexLive (@ForexLive) November 12, 2018
A Kuwaiti official has now confirmed that Opec and non-Opec members talked about possibly cutting oil supplies in 2019, at their meeting yesterday.
Reuters has the details:
A meeting of major oil exporters in Abu Dhabi has “discussed a proposal for some kind of cut in (crude) supply next year”, state-run Kuwait News Agency KUNA on Monday cited a Kuwaiti oil official as saying.
It said the proposal did not specify the volume of the cut, according to Kuwait’s governor to the Organisation of Petroleum Exporting Countries (OPEC), Haitham Al-Ghais.
Introduction: Brent crude rallies as Saudi promises output cut
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The oil price is rallying this morning after Saudi Arabia announced that it would cut oil production next month, by half a million barrels per day.
That’s being taken as a sign that oil cartel Opec could announce a co-ordinated cut at its December meeting, in a bid to prop up prices.
Saudi Energy Minister Khalid Al-Falih told reporters on Sunday in Abu Dhabi that:
“We as responsible producers are going to work, and work hard, to balance the market within a reasonable corridor,”
Al-Falih argued that demand for Saudi oil was “tapering off” due to seasonal factors, meaning the world’s largest oil producer should ship less.
Al-Falih was speaking at a joint meeting of Opec and non-Opec oil ministers, and markets have been quick to take the hint:
Brent crude has jumped by almost 2% this morning to $71.55 per barrel, while New York crude is 1.3% higher at $61/barrel.
That follows weeks of steady falls - Brent crude was trading over $86 per barrel at the start of October, before fears of a global growth slowdown took hold.
Oil prices have responded to the Saudi production cut announcement, If this Saudi cut and potential OPEC cut early next year changes the sentiment of hedge funds and money managers, prices could gain up to $7/b. This will bring us to about $78-79/b for #Brent. #oil #Price pic.twitter.com/LYJNpNEfSx
— Anas Alhajji (@anasalhajji) November 12, 2018
Higher oil prices will help the Saudi’s balance their budgets, at a time when Riyadh remains under heavy diplomatic pressure following the murder of Jamal Khashoggi.
But it will be a blow to global consumers, pushing up petrol prices on the forecourt and transport costs generally.
Stephen Innes of trading firm OANDA says oil is “the hottest topic” in the markets today.
The recent slide in prices are having far-reaching implications across all asset classes
He believes next month’s Opec meeting will be crucial:
Oil prices above $80 are never welcome by OPEC customers, and that seems to be a similar consensus among OPEC+ and US producers.
However, producers are concerned that the latest selling frenzy could see Brent oil reach $ 60 or below. So, it’s in OPEC’s best interest to tame the current supply glut....
But where oil prices are headed next, ultimately depends on the producers.
Also coming up today
The pound will be under pressure, as Theresa May continues to struggle to reach a Brexit deal. Time - never a commodity
-GBP/USD gapped lower towards 1.2900 after reports that UK PM May cancelled an emergency cabinet meeting which severely lessens the likelihood of an EU summit later this month
— RANsquawk (@RANsquawk) November 12, 2018
Italy will also be in focus, with new factory output data out this morning. Rome is still under pressure from Brussels to revise its 2019 budget, and still adamant that it won’t.
European stock markets are expected to rise by at least 0.5% at the open.
European Opening Calls:#FTSE 7158 +0.74%#DAX 11584 +0.48%#CAC 5128 +0.42%#MIB 19315 +0.29%#IBEX 9194 +0.65%
— IGSquawk (@IGSquawk) November 12, 2018
The agenda
- 9am GMT: Italian industrial production for September
Updated
