View from London: Watch OPEC Today and Copper, Oil, Gold

08/21/2017 2:53 am EST


Robert Savage

Partner & CEO, CCTrack Solutions

The OPEC technical meeting today may be a driver and the focus may be better put on USD vs. real assets today with copper, oil and gold all higher, writes Bob Savage, CEO of Track Research in his Monday commentary from London.

Politics beat economics, war beats both – focus today is on:

1) North Korea response to US military exercises with South Korea, along with China response.

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2) UK Brexit talks and the chasm between UK/EU positions;

3) US and NAFTA talks with reports suggesting autos, forex and trade deficits issues far apart;

4) Italian former PM Berlusconi ideas for a domestic return to lira while keeping EUR for international accounts;

5) the ECB Draghi speech in Jackson Hole still expected to lay out QE tapering.

Given that most of the US isn’t going to be paying much attention to anything other than the sun and the moon today, and given that the economic data releases were sparse today, trading reverts back to politics with the military exercises in South Korea the key story.

• China called on the US and South Korea to suspend the exercises and in the same breath asked North Korea to suspend its nuclear weapons program. While some will point out that the US and South Korea have been doing such exercises for decades, North Korea state media said: “The joint exercise is the most explicit expression of hostility against us, and no one can guarantee that the exercise won’t evolve into actual fighting.” South Korea has said the exercises, which are mostly computer-simulated, are purely defensive in nature and are not intended to provoke Pyongyang.

• Of course, there was other news, but that too mostly linked back to politics with the UK obsession over Brexit talks. UK Davis is pushing for trade talks alongside exit discussions while Europe is pushing back that not enough progress has been made for EU citizen rights, Northern Ireland’s border and the final cost for Brexit. More papers on this from the UK government will be floated this week

• Another trade story comes from the Wall Street Journal on NAFTA first round talks foreshadowing a difficult balancing act for US positions on autos, efforts to reduce the trade deficit, and currency movements.

• Perhaps the most exciting and least likely story comes from Italy where former PM Berlusconi in Il Giornale interview suggests an idea for a second currency – a new lira – to complement the EUR. The idea is to run the euro for international transactions and a new lira for domestic ones and he believes that it would help revive domestic demand. In the interview he says “we are convinced that the idea is compatible with EU treaties” and it will allow for a “partial recapture of the sovereignty of the state.”

• The last story that matters today is about Jackson Hole and further speculation that the ECB will steal the show from the FOMC – despite some denials last week – the WSJ reports he seems likely to lay out the case for tapering QE on Friday.

All of these leaves the USD mixed with it lower against the Japanese yen (USD/JPY), flat to down against Europe and mixed in Emerging Markets. The USD is trying to build a bottom, but the focus may be better put on USD vs. real assets today with copper, oil and gold all higher.

OPEC technical meeting today may be a driver and with oil holding the 55-day it’s likely the key for mood with $48.58 100-day m.a. key support for 200-day at $51.27.
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