The surge in oil prices was this morning’s number one discussion topic. An attack on Saudi Arabia’s oil infrastructure sliced the Kingdom’s production and propelled Brent crude prices from $60/barrel towards $66/barrel. The production gap will be filled from reserves in the short run, but it’s unclear how long the situation will last. The attacks raise geopolitical risk in the region with US President Trump “locked and loaded” to respond to the Iranian(-backed) (?) attack. European stock markets lose around 0.5% to 0.8%, with most losses already registered in the opening. Core bonds slightly benefit from the situation with US Treasuries outperforming German Bunds. Both undo some of the sharp losses from Friday’s US trading session. Today’s eco calendar was empty except from a mixed US Empire Manufacturing Survey. ECB de Cos and Stournaras joined Draghi/Lagarde’s call for fiscal policy to step up the efforts to boost the economy. Today’s action in EUR/USD doesn’t rhyme with other market developments. The currency pair initially shrugged off oil-related noise before entering a slide around European noon. The move goes against US/EU spread differentials. We assume that failure to retest/break the 1.1112 resistance again caused some dollar shorts to throw the towel given recent doubt around the Fed’s readiness to keep cutting its policy rates just for the sake of cutting. Our preferred scenario takes into account a 25 bps rate cut on Wednesday with the fresh dot plot flagging a, all else equal, final one in Q4 2019. The EUR/USD currency pair currently changes hands around 1.1020. The Japanese yen profited this morning from safe haven flows, but the dollar is slowly retaking the baton with USD/JPY currently around 107.90 from an 107.64 open.

EUR/GBP recovered from 0.8860 towards 0.89 before sterling refound its recent momentum. The pair slid towards 0.8850 as first headlines emerged from PM Johnson’s trip to Brussels to try to broker a last minute Brexit deal. There’s no real progress yet though apart from goodwill. Apart from Brexit talks, sterling investors have inflation numbers, retail sales and a Bank of England meeting this week. Recent evidence showed Brexit negotiations overshadow all other possible market drivers.

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News Headlines:

EU commissioner Guenther Oettinger warned on the negative (economic and political) impact if there is no EU budget by January 2020. The EU commission proposed a seven year budget that would represent about 1.11% of the EU GDP. Germany, supported by countries like the Netherlands and Sweden, is aiming for a budget of 1% of GDP. The debate occurs at a time when the ECB called for more fiscal stimulus to address current economic slowdown.

EU Commission president Juncker labelled talks with UK PM Johnson as ‘good’. A the same time, the EU said that the UK hasn’t made any new operational solutions yet, which it considers a necessity for the talks to make progress. A UK spokesman said discussions will intensify and meeting are expected to take place on a daily basis.

The general business conditions index of the NY-Fed manufacturing survey declined from 4.8 in August to 2.0 In September. De details of the report were mixed. Shipments (9.3 vs 5.8 ) and new orders (3.5 vs 6.7) eased, but employment sub-indices improved. Price indices rose, too. The forward looking index assessing general business 6M ahead eased from 25.7 to 13.7.


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