(17 September 2019) DAILY MARKET BRIEF 1：Oil risk to secure 25bp at Fed

The oil-related sell-off following the weekend's attack on Saudi Arabia facilities is already losing steam. On Sep 14th, coordinated attacks using drone technology were carried out on oil facilities in Saudi Arabia. Saudi output was initially estimated to drop 50% or approximately 5% of global oil supplies. While the threat of a military response lingers, news Japan & US will consider the coordinated release of oil reserves and limited actual impact on oil output (yet incoming news suggests experts becoming less optimistic about the recovery of oil supplies), has allowed crude prices to come off the top. Nevertheless, the overriding fact remains, that the impact on the already fragile global economy would be negative, increasing the likelihood of weaker demand in the mid-term. US- President Trump on Monday indicated that Iran was probably behind the attack. For the Fed higher oil prices are ill-timed. Fed fully priced for a 25bp cut. Adding Saudi-Iran tensions and related oil shock, on top of US-China trade issues and general geopolitical uncertainties indicate the Feds fading commitment to mid-cycle adjustment. With 75bp cumulative cuts priced into the Fed is unlikely to walk any expectations backward. With the Fed rate cut fully priced-in, equity markets are likely to react to other driver’s mainly news around US-China trade. U.S. Trade Representative's office said on Monday Deputy-level U.S.-China trade talks are scheduled to start in Washington on Thursday. This story combined with Fed easing should keep risk appetite elevated despite tension from the middle-east.

By Peter Rosenstreich