Daily Market Color November 6, 2017Crude Oil Surges After Saudi Corruption Campaign Dudley Departure This morning the Federal Reserve Bank of New York announced that its President, William Dudley, would be retiring before his term officially ends in January 2019. The expedited departure by Dudley is expected by the middle of next year and leaves yet another position open in FOMC leadership. The New York Fed President position includes vice-chair duties for the FOMC and carries a permanent vote on policy making decisions. During the financial crisis, Dudley played a central role in the implementation of unprecedented monetary stimulus. The Fed’s press release noted that Dudley’s early exit was initiated “to ensure that a successor is in place well before the end of his term.” Treasury yields and swap rates slid 1-4 bps on the day, with the 10-year note yield falling to a two-week low of 2.32%. The US dollar also declined amid the news of the shakeup in the Fed board, down 0.3% against major currencies. All three major US stock indices finished 0.1%-0.4% higher on the day, driven by gains in energy shares and news of trade talks between President Trump and Japanese Prime Minister Shinzo Abe during the first leg of Trump’s trip through Asia. Don’t Mess with the MBS Crown prince Mohammed bin Salman followed through on his commitment to tackle corruption at its highest levels in Saudi Arabia, as more than five dozen princes, officials, ministers and prominent businessmen were arrested over the weekend. The arrests were carried out following the establishment of an anti-corruption committee, and those detained were some of the most high profile figures in the country, including Prince Alwaleed bin Talal, the world’s 5th richest person. Crude oil futures surged with the news of major political turmoil for the world’s biggest crude exporter. A barrel of WTI rose more than 3% on the day to a new two-year high of $57.35. EU Authority Stretching Too Far In regulatory news, CFTC Chairman Christopher Giancarlo expressed concern regarding certain aspects of the ongoing Brexit negotiations and the potential for the EU regulators to claim direct authority over the US markets. Since the Brexit process will remove London regulators from EU oversight, the EU has proposed authorizing regulation of firms outside the EU by the European Central Bank and the EU Markets Authority. This proposal is not limited to UK entities, but would also apply to large US financial institutions even if they are working with US clientele. Under the proposal, the European Securities and Markets Authority (ESMA) would claim authority to perform on-site inspections of US businesses such as the CME without any coordination with the CFTC. Mr. Giancarlo sees this proposal as “disruptive, expensive and detrimental to the US trading markets and economy” with potential to “affect the availability of food in American grocery stores, the cost of home heating and mortgage rates.” As the head of the CFTC, Mr. Giancarlo is committed to preventing this regulatory overreach in order to ensure that the US financial markets continue to thrive.
