Tags: khashoggi | murder | oil | market | trump | saudi

Khashoggi Murder Fallout Could Jolt Oil Market

oil barrel with saudi arabia flag on the background of the world map with oil derricks and growth chart

Friday, 19 October 2018 08:35 AM Current | Bio | Archive

The Missing Journalist Jamal Khashoggi and Its Impact

President Donald Trump said it “certainly looks” like missing journalist Jamal Khashoggi is dead and warned of “very severe” consequences for the killing.

Trump told reporters: “I mean, it’s bad, bad stuff, but we’ll see what happens.”

So far, it appears that the very strong statement will not affect the very strong U.S. export of arms to Saudi Arabia.

However, the Trump administration also faces growing bipartisan outrage in Congress over Saudi Arabia’s role in Khashoggi’s disappearance.

The oil market has been relatively calm so far.

Unilateral action in response by Saudi officials on oil prices would damage Saudi oil revenue. The rise in the price would not offset the loss of volume to Saudi Arabia. As Saudi Arabia needs oil revenue, that would perhaps argue against such an action.

Fired up financial markets would only really focus on the oil implications of a Saudi reaction.

China Third Quarter GDP

China has published thi-quarter GDP data, which showed the Chinese economy slowing to 6.5 percent year-on-year, after growing 6.7 percent in the previous period. It was the lowest growth rate since the first quarter of 2009 during the global financial crisis. The current dismal growth also comes amid an intense tariff dispute with the U.S. and alarming off-balance-sheet borrowings by local governments.

There is no doubt that the Chinese economy is slowing. The Chinese government certainly wants it to slow, but it is unlikely that it’s growing at 6.5 percent.  

Most GDP data in most countries are dubious. China perhaps leads the world in dubious data. The point is that China should slow because China’s "trend" rate of growth may optimistically be assumed to be about 5 percent. Growing above ‘trend’ for too long requires a country to spend money it doesn’t have, which is "credit," which is not a healthy thing to be doing for the long term. This is well understood in China.

A slowdown in China has a bigger impact on the world GDP than it does on the world economy. China is a large, albeit not especially high-income economy. That means that when the nonsense aggregation of global GDPs takes place, China has a high weight in it.

China’s domestic economy is not especially integrated into the global economy, which means a slowdown in China has fewer implications for other economies in the world. 

Anyway, according to the latest data from what is available, the GDP value of China represents 19.74 percent of total world GDP while the GDP value of the United States represents 31.28 percent.

Emerging Markets – Is the Worst Over for Turkey?

After last Friday, Turkey released U.S. Pastor Andrew Bronson after more than two years of detention and the same day he appeared in the Oval Office and kneeled down to pray for Trump, tensions between the U.S. and Turkey, which is a NATO partner, have come down significantly.

Trump said Monday: “We had no deal with Turkey. I feel much differently about Turkey today than I felt about them two days ago. I have a very good feeling toward Turkey, two days ago, I did not.”

Turkey on Thursday presented its new budget proposal for 2019 that demonstrates that Turkey is finally looking to rein in public expenditures and refrain from creating another lending boom driven by Treasury guarantees, which are both key elements for restoring at least some of Turkey’s credibility it lost by investors over the course of the year.

The important question for investors is if Turkey will be able thanks to a much more favorable environment to put its “house’ and of course its currency, the Turkish lira (TRY), back in an acceptable ‘shape’.

We should have confirmation or not if that could be the case when the Turkish central bank meets next Thursday, October 25 and communicates its policy stance.

Yes, we’ve already seen signs that the Turkish lira is performing a little bit better, but the confirmation of its path to better times has still to be confirmed. The lira (TRY) has still a long way to go… hopefully, up in value!

On October 20, 2017 one needed 3.65 Turkish lira (TRY) to buy 1 dollar. Today, one needs 5.65 Turkish lira (TRY) to buy 1 dollar.

Turkey could become one of those emerging markets (EM) where risk-takers and ‘others’ could take on some bets that, when things work out as planned for now, could become "interesting," but always taking into account that inflation is expected at 17 percent next year and the 2019 budget shortfall should come in at just under 2 percent of GDP.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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Fired up financial markets would only really focus on the oil implications of a Saudi reaction.
khashoggi, murder, oil, market, trump, saudi
Friday, 19 October 2018 08:35 AM
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