Intraday Market Thoughts

Twist in Saudi Game of Thrones

by Adam Button
Nov 6, 2017 14:35

Major political upheaval is underway in Saudi Arabia after dozens of top officials were arrested on Saturday along with a series of other events that are unlikely to be a coincidence. The Canadian dollar was the top performer last week, while the pound lagged. CFTC positioning showed a shift against commodity currencies. A new Premium trade has been issued on a commodity currency, backed by 3 supporting charts.

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Twist in Saudi Game of Thrones - Gulf Bourses Brent 5 Nov 2017 (Chart 1)

Thirty-two year Prince Mohammed bin Salman continues to tighten his grip following his rise to Crown Prince in June. A series of arrests on Saturday, ostensibly for corruption, threaten major turmoil in the Kingdom. The arrests included 11 senior princes, a former finance minister and Prince al-Waleed bin Talal, who is the richest man in the Arab world and the largest shareholder of Citigroup. The head of the National Guard was also removed.

Also on Saturday, a missile was shot down near Riyadh while on Sunday a helicopter carrying Mansour bin Muqrin crashed. His father had been in-line to succeed King Salman until 2015.

This all comes just a week after Trump's son-in-law Jared Kushner made an unannounced trip to Saudi Arabia and on Saturday Trump tweeted asking Aramco to launch its IPO in New York. Lebanese PM Hariri's announced resignation on Friday on the grounds that it is no longer safe to remain on the post may be related to the Saudi equation as the Kingdom has long served as a safehaven to the PM and his family.

We struggle to believe this is all a coincidence but what comes next is equally opaque. The turmoil could be followed by assassinations and internal strife or Bin Salman could successfully tighten his grip on all the levers of power. For now, the present is developing quickly and the future highly uncertain.

Domestic market signals may also be tough to interpret. Saudi stocks fell 2.2% early but finished up 0.3% in what was likely government buying.

Late on Friday, WTI crude broke out to the highest since January 2015 and – once again – we can't dismiss that as a coincidence.We will be watching very closely in the days ahead.

CFTC Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR +72K vs +84K prior GBP +1vs -1K prior JPY -119K vs -116K prior CHF -21K vs -12K prior CAD +58K vs +72K prior AUD +52K vs +57K prior NZD -6K vs +1K prior

The head-and-shoulders pattern in EUR/USD along with the resurgent US dollar placed substantial euro positions in jeopardy. Commodity currencies also remain in a precarious position despite last week's bounce. With the BoE decision out of the way and no more hikes coming in the near term, expect to see a slow build in GBP shorts unless the Brexit rhetoric improves in the coming 6 weeks.


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