Missing Saudi Journalist Shakes Investors: 5 Things The Global Markets Were Talking About Today

A weekend of warnings on global economic fragility from G10 finance leaders at an IMF meeting in Bali had global equities starting this new week on the back foot, with regional bourses in Asia and Europe seeing red.

Sovereign yields are lower in this cautious climate, and crude oil has advanced as tensions rise between the U.S. and Saudi Arabia over the dissapearance of Saudi journalist Jamal Khashoggi. Politics and data are rarely a good mix and this week is awash with both.

Italy is to submit its contentious budget to the European Commission. Already, the proposed budget has potentially broken thresholds that will prompt vigorous debate from both parties. Expect Italian BTP yields to continue to come under pressure, backing up towards the psychological 4 percent level.

An EU meeting on Wednesday will provide an update on the status of negotiations over Brexit. If there is insufficient progress, the possibility of a special summit next month to finalize an agreement looks dead in the water. Dealers expect the pound to remain volatile in the short-term.

The U.S. Treasury report about the international economy and the forex market is to be released Tuesday. The focus for investors will be whether evidence is provided to act against China as a currency manipulator.

With all this in mind, here are five things the global markets were talking about on Monday.

1. Global Equities Continue To See Red

Japan's Nikkei index closed down 1.8 percent at a 2-month low, as automakers and other manufacturers were hit by news that the Trump administration will seek a provision about currency manipulation in future trade deals. It was the weakest closing point since mid-Aug. The broader Topix index dropped 1.6 percent, the lowest close in seven months.

Down under, the ASX 200 fell to a 6-month low overnight, led by the banking sectors growing concerns about the hit to earnings from an inquiry into misconduct. The S&P/ASX 200 index fell 1 percent. In South Korea, the Kospi fell 0.77 percent as institutions cut their exposure to riskier assets. The country's biggest automaker, Hyundai Motor, slipped 1.7 percent, marking its lowest trading level in eight years.

In China and Hong Kong, stock markets again slipped overnight — this following last week's deepest dive in eight months. The Shanghai Composite index closed lower by 1.5 percent, while in Hong Kong the Hang Seng closed 1.4 percent lower.

2. Oil Prices Rise On Saudi Tensions

Oil prices remain bid this Monday morning as tension over the disappearance of journalist and Saudi critic, Jamal Khashoggi, fuelled supply worries, although concerns over the long-term demand outlook dragged on sentiment.

Brent crude oil jumped $1.49 a barrel to a high of $81.92 before easing back to $81.13.

Saudi Arabia has been under pressure since Khashoggi, a U.S. resident, disappeared on October 2 after visiting the Saudi consulate in Istanbul.

President Trump has threatened "severe punishment" if it is found that the journalist was killed in the consulate.

On Sunday, the Saudi's said it would retaliate to any action taken against them over the Khashoggi case. The market is tentatively concerned that the Saudis may use oil as a tool for retaliation.

Limiting price gains is a report from the IEF last Friday stating that the market looked "adequately supplied for now" and cut its forecasts for world oil demand growth this year and next.

3. Italian And Portuguese Yields Fall

Portuguese and Italian government bond yields fell this morning, with prices outperforming Eurozone peers after ratings agency Moody's upgraded Portugal's credit rating back to investment grade.

Portugal's 10-year bond yield fell 4 bps to 2.01 percent after Moody's lifted its credit rating to Baa3 on Friday.

The positive periphery sentiment from Portugal has spilled over into Italy's battered bond market. Italian 10-year BTP yields are down 4.5 bps to 3.53 percent.

Note: Expect Italian yields to trade rather volatile this week as Italy presents its budget to the EC.

4. Dollar's Safe Haven Flows Ease

Risk aversion flows initially provided a bid for the traditional safe-haven currencies: the Japanese Yen and U.S. Dollar. However, market sentiment had eased ahead of the U.S. open.

The British Pound opened below the psychological £1.31 handle on concerns that a Brexit agreement might be slipping away after the U.K. and EU negotiators were said to have called for "a pause" in their Brexit talks. They will now wait for the outcome of Wednesday's summit before any resumption.

The Turkish Lira was over 1 percent firmer on optimism that relations between Turkey and the U.S. will improve, thanks to the release of American Pastor Andrew Brunson, who had been held in Turkey for two years on terrorism-related charges.

5. Embarrassing Losses In Bavarian Election Shake Merkel's Coalition

Germany's grand coalition could become even more unstable after coalition members suffered humiliating results in an election in the southern state of Bavaria.

Chancellor Merkel's Bavarian allies slumped to their worst election results in almost 70 years — her junior coalition partners, the center-left Social Democrats (SPD), saw support in Bavaria halved.

The SPD had hoped that infighting over immigration between Merkel's Christian Democrats (CDU) and the Bavarian Christian Social Union (CDU) allies would give them a boost in Bavaria.

Instead, support for the party fell to just under 10 percent, prompting debate over the sustainability of its alliance with Merkel's conservatives at the national level.

Merkel's authority may be called into question as little as two weeks. Polls for the election in the western state of Hesse, typically dominated by Merkel's CDU in a coalition with the Greens, suggest she is losing further support.

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