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Essential IR Insights Newsletter - February 2023

US-Saudi tensions prop up oil; global equities resume decline

➤ Brent crude oil rises amid concerns over missing Saudi journalist.

➤ Wall Street to open lower as global markets fail to gain momentum.

➤ Bank of America earnings beat estimates; Sears files for bankruptcy.

➤ Weekend Brexit talks between the U.K., EU end without progress.

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Global stocks resumed their decline, while traditional safe-haven assets rose along with oil amid tensions between Saudi Arabia and the U.S. over a missing journalist.

Brent crude oil rose 0.85% to $81.11 per barrel on the ICE Futures Exchange as of 7 a.m. ET, after U.S. President Donald Trump threatened "severe punishment" if the oil-rich Middle Eastern country is found to be connected to the disappearance of Jamal Khashoggi, a known critic of the kingdom who has been missing since early this month. Saudi Arabia's King Salman has reportedly ordered an internal investigation into Khashoggi's disappearance, though the country warned that it will retaliate against any potential measures "with greater action."

Safe-haven assets gained as the Saudi tensions added to a list of global investor concerns, with gold futures up 1.10% to $1,235.40 per ounce and the Japanese yen trading 0.42% higher against the U.S. dollar. Yields on 10-year Treasurys stood at 3.15%, while those on German Bunds were stable below 0.50%.

Sterling gained 0.17% against the dollar, reversing earlier losses after weekend discussions between Britain and the European Union on a post-Brexit partnership ended without progress, adding to concerns that the U.K. will crash out of the bloc without a deal. The two sides are not scheduled to meet again until a summit of European leaders on Wednesday. The euro gained 0.32% against the dollar.

The Chinese yuan was broadly steady against the dollar after People's Bank of China Governor Yi Gang reiterated over the weekend that China "will continue to let the market play a decisive role" in setting the currency's exchange rate. Yi's statement comes as the U.S. Treasury Department is expected to say in a biannual foreign-currency report this week that China is not manipulating the yuan.

However, "there are risks that the White House may bend the rules for the Treasury and invoke old U.S. trade law to label China a 'currency manipulator,'" according to Viraj Patel, foreign exchange strategist at ING. "Our base case of China staying on the monitoring list could see Beijing opting to provide greater stability to the yuan ahead of possible trade talks."

Meanwhile, futures point to a lower opening for Wall Street, after stock markets in Europe and Asia failed to track a global rebound on Friday. The Shanghai SE Composite lost 1.49%, Japan's Nikkei 225 index fell 1.87% and Hong Kong's Hang Seng Index closed down 1.38%, while in Europe, France's CAC 40 fell 0.28%, Germany's DAX index rose 0.23% and the FTSE 100 edged lower. Italy's FTSE MIB index edged 0.13% higher and Italian sovereign bonds were broadly steady, with 10-year yields easing 1 basis point to 3.56%, before the populist government submits its draft budget plans to the European Commission.

"We see a risk of severe fiscal slippage in 2019 but do not expect the EC to recommend opening an excessive deficit procedure before spring next year," Fabio Fois of Barclays Research said. "We do not expect the Italian government to soften its fiscal policy stance so long as financial market pressure remains manageable."

In the U.S., shares in Bank of America Corp. were broadly stable in pre-market trading after its third-quarter earnings beat estimates. Sears Holdings Corp. plummeted more than 40% after the U.S. department store chain filed for bankruptcy protection and said Edward Lampert stepped down as CEO, while Harris Corp. and L3 Technologies Inc. will also be in focus after agreeing to merge to create one of the biggest defense companies in the world.

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The day ahead:

8:30 a.m. ET — U.S. retail sales (Econoday consensus: 0.6% monthly)

8:30 a.m. ET — U.S. Empire State manufacturing survey (Econoday consensus: 19.3)

10 a.m. ET — U.S. business inventories (Econoday consensus: 0.5% monthly)