Morning Brief – Politics In Focus

Markets are reacting to the news that US President Biden largely failed in his trip to Saudi Arabia, in which he hoping to reach a deal on oil production for the United States.

Biden went to the Kingdom over the weekend to help drive down gasoline prices and rise OPEC production to lower oil prices as US inflation is above 40-year highs and threatening his approval ratings.

Biden desperately needed the help of OPEC giant Saudi Arabia at a time of high crude prices and other problems related to the Russia-Ukraine conflict and dwindling US production.

Washington also wanted to curb Iran’s sway in the region and China’s global influence. Biden basically left the meeting empty handed, but hoping that OPEC, comprising Saudi Arabia, Russia and other producers, will boost production at a meeting on Aug, 3rd.

Gulf states, which have refused to side with the West against Russia over Ukraine, are seeking a concrete commitment from the United States to strategic ties that have previously not existed.

Oil price are drifting higher on the news and taking a cue from last Friday’s move higher. This is probably not going to be good news for US stocks while oil prices rise.

Some reports have also been circulating this morning that the shockingly high US inflation CPI print made the expected, and very well signalled that a 75-basis point rate hike seemed to be required, at the minimum.

The Fed was in its pre-meeting meeting ‘blackout’ period though and officials at the bank do like to prepare markets for what to expect when rate hikes are on the agenda. Being in the blackout period meant the Fed could not signal it had heeded the CPI data and wanted to now hike by 75 basis points.

Hence, reports this morning that a leak was made on purpose. The chosen messenger to receive the leak was a journalist at the Wall Street Journal, Nick Timiraos. He wrote an article indicating markets should now expect 75 basis point hike.

The 75bp hike was duly delivered days later from the FOMC. The market now expects a 75-basis point hike. But I guess it is at least better than 100 basis points.

Rising oil prices and a 75-basis point thus sets up the market mood during Monday trade. With this type of sentiment we could see oil climbing and the US dollar gaining.