Oil

We focus on Brent as the global benchmark.

Prices bounced to $43.14/bbl during the week as High-Frequency Traders bid up prices on news of drilling rig shutdowns related to Hurricane Sally, which took over a quarter of US offshore gulf crude oil offline.

The market was also digesting news from the online OPEC meeting. Saudi Arabia was clearly extremely annoyed at other OPEC members exceeding their quotas. Particular fury was aimed at the normally ultra-loyal UAE – which according to the IEA has been producing an extra 520kbd (20%.

Saudi’s oil minister went on to threaten that “those who gamble on the oil price will be hurt like hell”. But in reality, it is the demand which remains the real problem. OPEC itself reduced its 2020 forecast for oil demand to 90.2 mbd (down 400kbd in just one month). And with prices low, cash-strapped producers will always be tempted to over-produce.

S&P 500

We focus on the US S&P 500 Index as the world’s major stock market index.

The market slipped again last week, closing at 3319; whilst the tech-heavy Nasdaq index is now down 12% from its peak. Apple (AAPL) is down 23% from its high, Netflix (NFLX) down 18%, Nvidia (NVDA) 17%, Facebook (FB) 17%, Amazon (AMZN) down 17%, Google (GOOG) 16%, Microsoft (MSFT) down 14%.

The week’s “highlight” was the Snowflake IPO (SNOW), which perfectly captured the bubble mood on Wall Street. It is, of course, losing money – $171m in the 6 months to July, on revenue of $242m. And it has been loss-making since it was founded in 2012. It also operates in the highly competitive field of managing data on the cloud, and so competes with deep-pocketed rivals including Microsoft and Amazon,

But in today’s bubble economy, details like this don’t matter. Wednesday’s buying frenzy on its debut took it to peak valuation of over $70bn. That’s a price/sales ratio of nearly 150, annualizing the 6-month data. Nothing like this has been seen since the peaks of the 1999 dotcom era, after which the Nasdaq Index fell 78%.

Worryingly, the Federal Reserve chose the same moment to confirm that its expected V-shaped recovery had failed to appear:

“Overall activity remains well below its level before the pandemic, and the path ahead remains highly uncertain.”

And, of course, the market also had to absorb the unwelcome truth from leading US health expert, Dr Fauci, that there was no ‘quick fix’ for the virus. He said his target for “A return to a reasonable form of normality (was) by the end of 2021”.

They don’t ring a bell at the top of markets to warn that a collapse is underway. But all the signs are currently pointing in the same direction.

Interest rates/Gold

We focus on the US 10-year rate, as this is the “risk-free” benchmark for global markets.

The rate continued to plateau last week, ending up 0.3% at 0.69%.

Low rates, and the return of the “bubble economy” on Wall Street, are leading some investors to look for a ‘store of value’ outside the control of central banks. Gold is the obvious candidate – although some prefer crypto currencies such as Bitcoin (BITCOMP).

Gold’s advantage is its long history, going back millennia. And it becomes particularly popular during periods such as today. As the chart shows, it hit a peak of $1920/oz in 2012 as the fallout from the subprime crises continued. Recently, it has reached a new all-time peak at $2070/oz in nominal terms.

Brexit set to further hit UK economy

The UK’s long march towards divorce from its major trading partner, the EU, is now just 102 days away – even though voters were assured by Boris Johnson after the referendum that:

“British people will still be able to go and work in the EU; to live; to travel; to study; to buy homes and settle down… There will continue to be free trade and access to the single market”.

The EU suggested extending the Transition Period beyond December, to take account of the pandemic’s impact on the economy. But Johnson refused the offer. Yet the photo highlights the extent of the downturn – showing Euston Station – one of London’s mainline stations, virtually empty at peak time on Friday morning.

The government is now intent on making life even more difficult for business. It has introduced a new Internal Market Bill that will allow the UK to break international law as set out in the EU Withdrawal Act – even though this was negotiated by Johnson himself and endorsed by all Tory MPs in January.

Nobody in their right mind will now make major concessions on trade to a government that doesn’t respect international law.

The government has also closed down the Brexit Department. So most of the civil servants who actually understood the full implications of Brexit have now moved to other duties. And the prize of a US trade deal looks as far away as ever, given America’s strong support for the Good Friday Agreement – which would be broken by the proposed changes to the Withdrawal Act.

Given the absence of government information, we have set up Ready For Brexit – a subscription-based service aimed at providing the practical support that SMEs need to continue importing/exporting into the UK from January. We hope this is helpful.