Intro: Investors have a lot on their plate this week including German Banks, Oil and Saudi Arabia while domestically we have the next to last jobs report before the election. The wildcard for the week is the latest rhetoric from the Presidential candidates.
Oil: Last week, members of OPEC came to an agreement that they will limit output to a range of 32.5 -33.0 million barrels per day sending the price of oil 5% up on Wednesday 9/28. Stocks and the energy sector in tandem shot up after the announcement was made. The next OPEC meeting in November is supposed to determine the exact amounts each member would cut. As this week progresses, we will likely see this to be a case of words meaning absolutely nothing as OPEC members start hinting that the agreement was a farce sending oil and the sector back lower.
Saudi Arabia: After the US Congress overrode President Obamas Veto (the first in his Presidency) passing the JASTA (Justice Against Sponsors of Terrorism Act), Saudi Arabia saw their stock market drop and their largest bank hit an all-time low. With a potential cash shortfall, investors are curious to see if Saudi Arabia follows through with their threat to sell all of their US Treasury’s before they are locked up by any lawsuit. The first lawsuits against the Saudi government were filed this weekend. If this was to happen, we would see Treasury’s drop pushing yields higher. This would also weaken the dollar and cause a lot of volatility in the markets.
Ze Germans: Concerns over Germany’s largest banks continue to send ripples across the banking sector. Because of Deutsche Bank’s $75 Trillion (Yes TRILLION) in derivatives, there is definitely cause for concern for the banking sector. Investors will be looking to see if the German government may potentially provide some kind of aid (Bail out or Bail in), capital raise, or if they sell any units to keep them afloat. Any speculation as to government aid would provide evidence that the gravy train continues sending the broader markets higher. If more news comes out that additional counter parties are limiting business, or cutting liquidity with them, concerns over another Lehman moment approaching will send the markets lower. Even though last Friday saw a story that had Deutsche Bank and the DOJ coming close to a $5.4B settlement, the report has not been verified. Investors should also pay attention to the ECB 7 day USD Lending facility. If there are fears of a European bank potentially failing, banks will turn to US dollars. The facility shot up last week.
Non-Farm Payrolls & Unemployment Rate: On Friday (10/7), Non-Farm Payrolls and the Unemployment Rate are released. Investors will be watching this as a talking point for the presidential candidates on strength of the US economy to push their agenda. A weak reading will potentially be more ammo for Trump with the markets reacting negatively, while a strong reading would likely strengthen Clinton’s position and the markets would likely rally in reaction.
PMI Readings: PMI readings from across the globe are due out this week. Traders will watch these readings as potential weak readings could cause central banks to take further steps to stimulate their respective nation’s economies.
FOMC Members Speak: Also on Friday (10/7), 4 FOMC members are scheduled to speak throughout the country at various forums. Investors will continue to listen to potential hints as to the timing of a potential interest rate hike. Since the FOMC meets 2 more times this year, and continues to say there will be 1 rate hike this year, we will wait to see if they hint which of these times they will pull the trigger.