The main news of the past week is the reduction of interest rates by the FED. This move was anticipated by the market and has been advocated for since the beginning of this year. It marks the first interest rate cut since September of last year and signals that the American FED is now shifting its focus from inflation and protection against it to increasing economic activity and creating new jobs. Although the FED is in focus, this does not mean that other risks have disappeared. The main geopolitical risks, in order of importance, are: the American civil war, the war in the Middle East for the creation of ‘Greater Israel’, and the war in the Caribbean.
When Trump won the American elections, expectations were announced regarding major financial movements – a rise in the stock market, a drop in oil prices, a rise in bitcoin, a drop in interest rates, and a weakening dollar. What has actually happened to date? The numbers speak for themselves: S&P +16 percent, WTI -11 percent, bitcoin +72 percent, DYI index -6 percent. It should be added that the price of gold has again reached a record high, breaking the value of 100 euros per gram for the first time, that the price of silver is also rising and is currently at 44 dollars per ounce, the highest in the last 14 years.
Global gold prices have risen by 39 percent this year. This is more than during the coronavirus pandemic and the 2008 recession. Gold prices have not risen at this rate since 1979, when the global energy crisis triggered an inflationary shock that shook the global economy. This year’s record growth is a result of investors’ desire to minimize their risks amid rising uncertainty in the American economy, as well as the unpredictable policies of American President Trump.
Limited Growth in Oil Prices
Brent crude futures prices continue to hover around 66 dollars per barrel, primarily due to signals from leading producers about increased supply. Iraq has increased its oil exports as part of the OPEC+ member agreement. Increased exports will bring additional revenue to the budget, measured in hundreds of millions of dollars. It has not been specified how much they have increased their deliveries. In August, Iraq exported an average of 3.38 million barrels of oil per day, and expectations are that in September they will deliver between 3.4 and 3.45 million barrels per day to foreign buyers.
Kuwait, on the other hand, plans to increase production to 2.56 million barrels per day in October, according to the OPEC+ agreement. Current production capacities are 3.2 million barrels per day, the highest in over a decade. They reached their peak in 2010, at 3.3 million barrels per day, before falling below the three million barrels per day mark. Leading producers are signaling more barrels, and China and the USA have absorbed the surplus so far by procuring oil for strategic reserves. Their procurement will limit the potential for oil price growth in the short term and open up space for a downward trend.
European natural gas futures prices (TTF) have been around 32 euros per megawatt-hour since mid-September, supported by ample supplies and LNG transactions. Wind energy production has remained strong, and temperatures are above seasonal norms, although forecasts now indicate cooler conditions and weaker wind energy production. The storage level in the EU currently stands at 81.6 percent of capacity, with Germany at 76.4 percent, France at 90.6 percent, and Italy at 91 percent.
Meanwhile, as part of its latest sanctions package against Russia, the EU has proposed a complete ban on imports of Russian LNG starting January 1, 2027, in an effort to limit Putin’s ability to finance the war in Ukraine. The USA has reiterated its readiness to increase LNG exports to Europe, and additional production capacities are expected to come online in the coming years.
