Brexit, Brent and Bavaria
- The interminably tedious process of separating the UK and the EU is now described as a "stalemate". No further talks will take place before the EU heads of government meet on Wednesday. A deal is likely at the very last minute. It is not the very last minute yet.
- US President Trump threatened "very powerful" actions against Saudi Arabia over the Khashoggi affair. Congress may weigh in with sanctions. Markets are concerned about a possible Saudi response – selling assets (dollar negative) or forcing the oil price higher (dollar positive). The oil price would be the greater economic threat.
- German Chancellor Merkel's coalition allies, the CSU and the SPD, lost votes in the Bavarian regional elections. While the anti-party, AfD, did increase its votes, the best performer was the pro-immigration Green party. Investors will watch to see if the losses force the CSU chair to resign as interior minister in the federal government.
- All this politics encourages market volatility. But the underlying economy remains stable. US retail sales data should show Americans continuing to indulge in the national pastime of visiting the shopping mall. Labor markets support household income, and US President Trump's trade tax increases have not hurt consumers yet.