Geopolitical tensions escalated last week following the attack on Saudi Arabia’s oil production facilities. It has been estimated that the attack destroyed c.50% of Saudi production, although there were assured statements from the capital that oil exports would be maintained, and lost capacity would be expediently rebuilt. Following a huge initial jump in the oil price, volatility in the commodity subsided towards the end of last week. However, while the volatility in the oil price subsided, new US sanctions against Iran meant that tensions in the Middle East increased markedly with the US also pledging military support to Saudi Arabia to boost their air and missile defences. Iranian-backed Houthi rebels have claimed responsibility for the drone and missile attacks although Iran denies any involvement. We expect tensions to remain elevated.
The Federal Reserve moved in line with consensus last week, cutting interest rates by 25bps; Trump was quick to lambast Chairman Powell for lacking “guts”. While a twitter outburst from Trump is of little surprise, what is a surprising is how the decision to cut interest rates has caused division with the Federal Open Market Committee; seven members voted to cut, two members voted to maintain, and one member voted to cut further. Powell cited that a second cut was necessary due to slowing political growth and worsening trade tensions however, the dissent within the committee will make it more difficult to decipher the trajectory of interest rate policy, resulting in polls for further rate cuts falling from 100% to 80%.
Several weeks ago, we wrote about the suspension of parliament, titled “Prorogue” and in the UK, parliament remains suspended as a result of the invocation of prorogation. In the week ahead, we expect a decision from the Supreme Court over whether Boris Johnson acted unlawfully by suspending parliament; to be clear, this is not about Brexit, it is a legal argument. After all, there is no one place where all the rules of government are written down, which means the Supreme Court must decide between the competing legal arguments, providing a stress-test of another kind, that of our unwritten constitution.