Oil prices

Oil prices increased by more than 1 percent on Friday as signs emerged that sanctions imposed by the United States on Iran could potentially limit global supply, and that demand from China could remain strong despite ongoing fears of a trade dispute between the world's two biggest economies.

Brent crude futures (LCOc1) closed up 1.5 percent, or $1.09 per barrel, to $75.82 per barrel, while U.S. crude futures (CLc1) finished 1.3 percent higher at $68.72.

Oil prices had endured a series of declines in recent weeks, but Stephen Brennock, an analyst at London-based brokerage PVM Oil Associates, told Reuters that "both crude markers are on track to end a steady run of weekly declines".

"This is largely due to a tightening fundamental outlook on the back of looming Iranian supply shortages,” he said.

The U.S. government re-imposed sanctions on Iran earlier this month after withdrawing from a 2015 deal that had eased earlier trade limits in return for Iran halting a programme of uranium enrichment.

Iran's Foreign Minister Mohammad Javad Zaraf was quoted by the Iranian Students' News Agency on Saturday as saying that it was still awaiting a response from Europe as to whether European Union nations would continue to trade with it, according to Reuters.

"We are still waiting for Europe to take action on the sale of Iranian oil and the preservation of banking channels," the Iranian foreign minister said.


Currencies
The U.S. dollar index finished flat on Friday after two-day talks between U.S. and China officials aimed at averting a trade war ended without any major breakthroughs.

The dollar index, which measures the currency's strength against six major world currencies, finished at 95.656 on Friday. The dollar had gained against the Japanese yen on Thursday after U.S. Federal Reserve meeting minutes indicated that further interest rate rises were likely in the United States in the coming months.

Meanwhile, Turkey's president Recep Tayyip Erdogan said on Saturday that the "commitment and determination of every member of our people" was needed to defend the country against attacks on its economy.

The Turkish lira had strengthened slightly against the U.S. dollar on Friday to 6.055 lira per $1, up from 6.095 on Thursday. The country's currency has fallen in value by around 40 percent against dollar so far this year, and its sovereign debt rating had been downgraded one week earlier by agencies Moody's and Standard & Poor's.

Moody's also warned in a note on Friday of the possibility of an emerging market 'contagion' following the decline in Turkish asset prices, stating that Argentina, Brazil, Russia and South Africa had already witnessed depreciation of their currencies against the dollar so far this year.

It also said that other markets remain at risk in terms of further U.S. interest rate rises increasing the cost of their sovereign debt, including countries with "relatively high debt burdens, weak debt affordability and relatively short debt maturities". Lebanon, Gabon, Kenya and Ghana were four markets identified as being vulnerable, as measured by widening spreads between their country's bonds and benchmark rates.

In the United Kingdom, the British pound dropped to an 11-month low against the euro due to ongoing fears about the country's ability to secure a trade deal with the European Union ahead of its scheduled exit from the trading bloc in March 2019. Sterling fell to an 11-month low of 90.390 pence per euro on Friday, with Kit Juckes, chief FX strategist for Societe Generale telling Reuters that "Fears of a ‘no-deal Brexit’ are reaching fever pitch".

 

Global Markets

Markets in the United States continued their strong run on Friday, with the S&P 500 index closing at a new high of 2874.70, up 0.62 percent and the Dow Jones index up 0.52 percent at 25790.35. The Nasdaq index also finished 0.86 percent higher at 7945.98.

U.S.investors reacted positively to a speech from Federal Reserve chairman Jerome Powell, who indicated that its monetary tightening policy of gradually increasing interest rates was set to continue, reaffirming the market's expectations of two further interest rate rises this year.

The US Commerce Department also reported higher-than-expected orders for locally-made capital goods in July. After the markets closed, Tesla CEO Elon Musk said that he was dropping plans to take the company private, saying that the company's shareholders had told him that it was not in their interest. Musk had previously said that he had secured backing from Saudi Arabia to take the electric car maker private.

Precious Metals

Spot gold prices closed at $1,205.55 on Friday, having fallen by around 12 percent since hitting a yearly high of $1,365.23 in April, as the U.S. dollar has risen and expectations of interest rate rises have continued.

However, there were signs among traders of futures in gold contracts that prices may have hit a floor, as there has been a surge in Comex gold call options at a price of $1,200 per troy ounce for contracts due for delivery in December, according to Reuters.

Copper prices also rose by 0.6 percent to $6,025 per tonne on the London Metal Exchange on Friday as demand fears eased, although traders told Reuters they expected further price volatility due to the ongoing trade dispute between the U.S. and China.


Middle East markets

Most Gulf markets reopen today after a break for the Eid Al Adha holiday. Market-watchers will be keen to see how the Saudi market reacts to the news reported by Reuters last week that the team of advisors set up to deliver the much-anticipated initial public offering of Saudi Aramco both on local and international markets had been disbanded, although the kingdom's oil minister Khalid Al-Falih insisted that plans for the listing were still moving ahead.

A note from Capital Economics on Thursday indicated that the news was unlikely to have any immediate impact either on the kingdom's economy or its financial markets in the near-term, given that the listing had already been pushed back.

Proceeds from the Aramco listing were due to be received by the kingdom's Public Investment Fund to help shape its Vision 2030 reform agenda, but the sale of part or all of PIF's stake in petrochemicals giant Saudi Basic Industries could also deliver billions to the fund, and Reuters reported on Friday that an $11 billion loan had already been raised from local banks.

The International Monetary Fund also said on Friday that the kingdom's non-oil economy is likely to pick up this year, despite delays to the Aramco listing.

 

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(Writing by Michael Fahy; Editing by Mily Chakrabarty)
(michael.fahy@thomsonreuters.com)

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