Repo-injections in the USA, Brexit optimism and other results

23 sept. 2019

We have already written about the results and the Fed’s decisions, the Bank of Japan, Switzerland and England in a previous review. We only note that mood is “dovish”, which creates a favourable background for the gold growth, therefore, we continue to buy the asset this week.

As for the USA repo market. A shortage of liquidity in the money market provoked the Federal Reserve Bank of New York for the first time in 10 years to resort to liquidity injections. We are talking about tens of billions of dollars a day. So far the dollar on the foreign exchange market reacted calmly, the problem may well be aggravated.

Too large volumes of US government bonds are pumping dollars out of the US money market, which stimulating dollar infusion by the Fed. Whether it turns on the money machine at full capacity or a new round of quantitative easing is not clear yet, but for the dollar, it is an alarming signal. Our position on the dollar is also unchanged so far - we are looking for points for its sales. First of all, against the Japanese yen and the British pound.

The last 3 weeks have been extremely successful for the British pound. Its growth against the dollar, counting from the beginning of September, reached 600 points. The last time such an impressive rally was observed at the end of 2018. Brexit is the reason for all the troubles and joys. This time, a series of defeats of Boris Johnson in Parliament led to the fact that the markets believed that there would be no withdrawal without a deal. This in turn sharply increased the chances of successful negotiations with the EU. This is also supported by European Commission President Jean-Claude Juncker comments that the Brexit deal could be concluded before October 31.

But not everything is decided, this week is likely to give the pound several reasons for volatility. We are talking about unresolved problems with the Irish border, as well as the decision of the Supreme Court of Great Britain regarding the legality of the suspension of Parliament. Our position on the pound is still unchanged - we will look for points for purchases of the British currency. But we will do this from relatively conservative points. Friday showed that the pound can not only grow but also fall.

Last week was extremely busy for the oil market. The drone attack on the oil infrastructure of Saudi Arabia not only led to a 50% drop in oil production but also triggered a panic in the oil market. The result is the one-day oil growth record in history (an increase of about 15%). However, the very next day, Saudi officials assured that by the end of September production volumes would be restored.

Even though now some imbalance has arisen in the oil market, given its temporary nature, we recommend oil sales. Comments from Arabia on the restoration of production ahead of schedule is likely to return oil to the level at the start of last week. And this means that 5% is the potential oil decline.