Mike’s Morning Brief – December 11, 2019

By December 11, 2019 Mike's Morning Brief

What’s going on in the world…

Market opens flattish after its second consecutive decline. December has been very choppy price action thus far. There’s a flood of news and events the Market is trying to price in. None of it is really new. All of it is complicated in nature with no real easy, clear solution. Despite the uncertainty, the S&P keeps grinding away near all-time highs. The massive Saudi Oil company, Saudi Aramco, finally made its IPO overnight. It was a success. That was all but guaranteed. More on this below. Today is Fed day. No movement on rates is expected. The Market has a 97.8% probability that the overnight rate stays at the current 1.5-1.75% range. But interestingly, the difference between the chance of no change in rates has not moved much in a month. However, the probability of a move swapped from a 4.4% chance of an actual cut back in November to a 2.2% chance of a hike today. It’s a very small chance, but the point is, the trend has changed since the strong job number reported last Friday. This makes for the 2020 outlook in today’s press conference that much more significant. The Market is going to be paying attention to every word Powell speaks. There’s no real update on trade talks, but it sounds as both parties are trying to come to terms to delay the tariff increase set to trigger on Sunday. Agricultural purchases seem to be at the heart of these talks, with nothing on intellectual property, which is the most important. The new NAFTA deal is on track for passage, but might not get done by year-end. The big British vote is tomorrow and the fate of Brexit lies in the ballot box. Stocks are now higher. Bonds are higher too, with yields falling. We haven’t seen both Stocks and Bonds in lock-step for a while. Gold is higher. Oil is flat. The Dollar is ticking up. The VIX is over 15. Things seem very tame at this moment. That is going to change at 11a. Hang on for the ride.

Saudi Aramco officially IPO’d. The stock was up 10%, limit high, in its public debut. $1.9 Trillion Market cap. Nearly twice the size of Apple and Microsoft. It is six times larger than Exxon. In fact, it is larger than all of the American energy companies combined. And how about this one: Aramco is worth more than twice the size of Saudi Arabia’s annual gross domestic product. Saudi Aramco is Saudi Arabia’s cash machine. It’s their ATM. There was never any possibility of the listing flopping. For Aramco isn’t just any old oil company. It’s the state money-spinner for Saudi Arabia, and its power and prestige echoes that of the Kingdom’s rulers, including its young Crown Prince, Mohammed bin Salman. Prince Mohammed talked up the IPO as a way to raise money for projects that could wean the country off oil. He’s marketing his “Vision 2030” to attract foreign investment, balance the budget and privatize government assets. He’s lifted a ban on women driving and relaxed dress codes, in part to try and attract more tourists. The rest of the world is not quite sure what to think of the Saudi empire right now.

Have a great morning,

Mike Frazier