Financial market research and analysis

Asian markets traded lower overnight despite a rebound in global equities at the end of last week. Concerns over higher US borrowing costs were the catalyst for last week’s heavy sell-off. However, there were plenty of other risk factors which were also dampening sentiment. Those risk factors, including US- Sino trade tensions, Brexit, Italy’s budget proposal and now increased political tensions between the US and Saudi Arabia, are set to keep pressure on risk appetite this week.

Optimism stemming from Friday’s stronger than forecast Chinese export data for September calmed investors nerves before the weekend. The worry is that stronger figures from China are just businesses front loading orders prior to tariffs kicking in. Chinese GDP data due at the end of the week will be very closely watched to gauge the impact of the trade tensions on the Chinese economy so far. Signs of a slowdown are expected to hit sentiment hard as trade tensions with the US remain significant.

Oil to $100?

Oil reversed recent losses as tensions between Saudi Arabia and the US attracted broader attention. Investors suspect that the latest developments concerning the disappearance of Saudi journalist Koshhoggi could undermine the leadership of Crown Prince Mohammed bin Salman and destabilize the oil-rich nation. Saudi Arabian shares dived 7% at their lowest on Sunday.

Oil jumped to a high of $81.86 overnight as tensions in Saudi Arabia could add to the list of supply issues facing oil. Saudi Arabia was expected to replace some of Iran’s production. These latest developments could see Saudi starting to use oil as a means of attack. In which case, oil to $100 is firmly on the table.

Pound Dives on Brexit Disappointment

The pound dropped heavily on the open as Brexit talks are in danger of hitting a complete standoff. Theresa May dismissed the draft treaty bringing the UK out of the EU, as a “non-starter” and a risk to tearing her government apart. With no more talks planned for before the EU leaders’ summit on Wednesday further progress is looking unlikely. Theresa May is aware that the worse that she could do here is accept a deal that will be a complete no-go within her government. Under those circumstances, she and the Tories could struggle to hang onto power. The pound is currently finding support at $1.31, however that level could quickly be breached once the European session kicks off.

With higher oil prices owing to Saudi Arabian tensions and a weaker Brexit hit pound, the FTSE was managing to buck the trend of its European peers. FTSE futures are pointing to a higher start.

Italian Budget Woes

The euro is extending last week’s losses, as the new week kicks off. The Italian budget drama which has captivated investors’ attention for the past few weeks is expected to do so again today. It’s deadline day for the countries to submit draft 2019 budgets to the European Commission. Rome continues to push for heavy spending, to run a budget deficit far higher than the EU’s rules allow. This has pushed up Italy’s borrowing costs to the highest level in 4 years. Investors are nervous about a European debt crisis 2.0. A full-on clash with the EU is expected to push Italian borrowing costs up higher and lower demand for the euro.