市场资讯及洞察

What do we know about the state-owned oil giant - Saudi Aramco? World’s largest company World’s biggest state-owned oil and gas companies World’s cheapest oil producer A leader in oil production Second-largest proven crude oil reserves All of the above would probably make this upcoming Initial Public Offering (IPO) one of the most hyped IPOs of all time. In 86-year of history, Saudi Arabia has officially stated its plan to float the company on the Riyadh stock exchange.

After first being announced in 2016, the Saudi Aramco officially confirmed the IPO on November 3. However, the size and scope of the IPO were unknown so far. On Sunday, Saudi Arabia’s officials have officially launched the IPO and confirmed that the domestic listing will take place in December.

Vision 2030 The primary purpose of the IPO is to diversify Saudi’s economy and its reliance on the oil industry. After the fall in the oil prices in 2015, Crown Prince, Mohammed bin Salman’s introduced the Vision 2030 which encompasses the desire to reinforce and diversify the capabilities of Saudi’s economy. The Prince has designed its vision on three main pillars: Saudi Arabia’s status as the heart of the Arab and Islamic worlds.

Becoming a global investment powerhouse. Transforming the country’s strategic location into a global hub connecting Asia, Europe and Africa. Hence, transforming Aramco from an oil-producing company into a global industrial conglomerate is a key step in raising funds for the Vision 2030.

Lacklustre International Response Even though the national oil company do have a high degree of independence, the Crown Prince has taken a more active role in the company over the years. As the purpose of the IPO is to raise funds to follow the plans to diversify the economy, the money will not be going to the company, unlike standard IPOs It is, therefore. a distinct consideration for the Aramco investor Bankers were unable to convince many international money managers of the merits of the deal which prompted Aramco to keep the IPO local. Shares will not be marketed in the US, Canada and Japan as originally expected.

The Domestic IPO On Sunday, Aramco finally provided details on what could be the world’s biggest IPO. Currently, the Chinese online retail giant, Alibaba holds the record with an IPO of $25 billion. Valuation Aramco valued the company between the $1.6 trillion to $1.7 trillion which was below their Crown Prince’s valuation of $2 trillion.

The new valuation implies that the investors will yield a dividend lesser than those from other leading oil and gas companies. A Smaller Stake Aramco decided to sell only 1.5% of its company on Riyadh’s Tadawul exchange which amounts about half of the amount that had been considered at an indicative price range of 30 Saudi riyals ($8.00) to 32 Saudi riyals per share. At the top of the range, the company could raise as much as $25.60 billion beating Alibaba’s capital raise in 2014.

The IPO will be split into two tranches: 5% will go individual investors who will have until November 28 to sign up for the IPO 1% to institutional investors who will have until December 4 to subscribe. Despite the lower valuation, a smaller stake and an IPO limited to local investors, Saudi Aramco is confident that they will have sufficient Middle Eastern institutional investors and local demand for a successful IPO. Setbacks in the Oil Market Oil Demand Oil prices have slumped in the last few years and have more than halved since mid-2014 mainly because of: A glut in global supply A lacklustre demand The dramatic fall in prices has forced OPEC members to cut back production to help stabilise supply and cushion the fall in prices.

US shale producers, geopolitical risks, tensions in the Middle East, trade tensions, and slowing global growth are key factors affecting the supply and demand dynamics in the oil market. Oil and Gas Divestment – Climate Activism Another crucial factor that has caused a shift in the oil market is the growing movement towards climate change which are subsequently pushing investors away from the oil and gas sector. The industry has faced intense pressure from activists and we might see the pressure intensifying as such high-scale IPO will undermine their fight against the climate crisis.

Saudi Aramco is among the top carbon dioxide and methane emitters. Those concerns are forcing portfolio managers to divest from oil and gas companies to embrace more sustainable investment. Drone Attacks The crippling attacks have caused major damage to Saudi Aramco’s facilities in Abqaiq and Khurais.

Even though the company recovered quickly and resumed production, investors are taking note of the nation’s vulnerabilities to attacks. As of writing, it was also reported that Yemen’s Houthi rebels has seized Saudi ship carrying oil rig. At a time where Saudi Arabia wishes to diversify and entice foreign investors, keeping the IPO as a local affair has undermined the efforts to open its economy to the world.

The much-muted details of the IPO, setbacks in the oil markets and the gruesome killing of Jamal Khashoggi have trigger hesitations from international investors to buy Saudi Aramco at full price. Saudi Aramco is a leader in the industry and will probably be able to cope with the current challenges of the industry until the industry is faced with the situation of peak oil demand. Oil Prices and the IPO The upcoming IPO will be one of the key determinants of the immediate price action of oil.

The public offering and the OPEC meeting are intertwined and oil traders should monitor these events carefully. OPEC’s de facto leader is Saudi Arabia and it is reported that the Saudis are set to push OPEC countries to make deeper oil cuts to keep oil prices higher. On the trade front, even though there are some conflicting trade headlines, there is much optimism on the trade front to keep oil prices from falling to September lows.

All-in-all, those two main events provide some upward room for oil prices.

Investors generally piled-up in the Gold and the US dollar as those assets are viewed as safe-haven during times of crisis or uncertainties- be it economical, political or policy uncertainties. 2020 has been a year of extreme uncertainty and volatility which saw the world battling an unprecedented and paralleled health and economic crisis in modern times. Gold With the passing months and fears of second waves of an outbreak, the predominant uncertainty for the markets is when will the world recover from both crises. In such an environment of doubt, investors are either hedging or seeking safety from volatile investments with haven assets like the gold.

The precious metal has been on a tremendous rally since the pandemic rattled the markets. Aside from the economic and health crisis, geopolitical tensions, massive stimulus packages and the uncertainty on the US election have fuelled the rally in gold. The XAUUSD pair has even traded around the elevated levels seen during the financial crisis and reached a high of $2,075 in the month of July.

Source: GO MT4 Since August, the XAUUSD pair has been trading within a range as investors digested some positive vaccines updates, improving economic data and easing lockdown restrictions. The indecisiveness of investors is reflected by the Doji candle on the monthly chart found at the top of the upside trend which suggested a sign of possible reversal of price direction. Source: GO MT4 Technical Bearish Signal Recently, the gold has plummeted and flashed a bearish signal after dropping below its 50-day moving average.

The move has flagged further potential downside risks for the precious metal. Generally, the gold is quoted in dollar terms and moves in the opposite direction with the US dollar. As the greenback gathers strength, the XAUUSD pair is struggling to firm to the upside despite the geopolitical and economic uncertainties.

Most importantly, the pair broke the key psychological level of $1,900 to trade around the $1,865 level on Wednesday. Even though gold may be poised for further downside dragged by the strengthening dollar, the precious metal remains at elevated levels. Traders are to keep monitoring geopolitical headlines, central banks decisions, inflation levels, and leading economic data for fresh trading impetus.

The US Dollar At the start of the pandemic, investors rushed to the mighty dollar when they were confronted with the scale of the crisis. However, as the outbreak furiously spread across the globe, the US soon emerged as the country hit the hardest. The crippling effect of the pandemic on the US economy has caused the US dollar to lose its haven status and its preference over its peers.

Also, while the US was battling a political deadlock, the European Union has shown an unprecedented sense of unity which prompted investors to shift their focus away from the greenback to riskier currencies. Source: GO MT4 However, the US dollar made an impressive comeback this week. As Europe grappled with a second wave of an outbreak which may give rise to further lockdown restrictions, the US dollar is seen rising over the virus fears.

At the same time, a rout in the technology sector and a fragile risk sentiment in the stock market has helped the greenback to regain its safe-haven status. Major US equity benchmarks retreated sharply by more than 1.5% on four occasions since the end of August. Technical Bullish Signal On the technical side, the US dollar index broke out of its bearish downtrend to test the 50-day moving average on the back of its haven status amid the financial market volatility.

Recently, central banks have been more dovish which has also provided some support to the US dollar. We have seen more central banks looking at negative interest rates and other easing monetary policies as viable options. At such inflection point for the US dollar and the Gold, the guidance from central banks and governments will continue to drive the action in those haven assets while investors await news and updates on the vaccine front.

The Perfect Storm Brewing in the Oil Market The oil and gas industry has been undergoing significant challenges due to the structural shift within the industry. A pandemic-induced economic downturn and an oil price war have now added another layer of uncertainty to the oil markets. Tensions between Saudi Arabia and Russia have disrupted the stability that the oil industry requires to be able to remain afloat during such difficult times.

Demand and Supply Shock The oil market is facing both a demand and supply shock, simultaneously. In other words, there is a flood of supply at a moment of diminishing demand. Demand: Different forms of lockdowns across the globe due to the pandemic means empty roads, grounded aircraft, plunging car sales and disrupted supply chains.

These industries are key consumers of oil. Supply: An oil price war between Saudi Arabia and Russia was the tip of the iceberg and triggered the flash crash in March. The oil kingdom raised output to full capacity to fight a price war with its rivals, destabilising the oil market at a critical time during the coronavirus pandemic.

Tensions among oil producers are not uncommon but crude oil prices experienced steep declines, due to weak fundamentals and geopolitical tensions. Multi-year Low The flash crash in March has nearly halved crude oil prices. During the month, trading was highly volatile - WTI and Brent Crude traded more than 45% lower to a multi-year low at $20.50 and $24.

Stimulus Packages Brought Some Stability The bold actions from central bankers and governments to implement new and massive monetary and fiscal packages to stem the downturn helped the oil market from a temporary bottom. As of writing, WTI and Brent Crude have stabilised and have consolidated around the $22 and $26 levels, respectively. USOUSD AND UKOUSD (Monthly Chart) Source: GO MT4 An Oil Storage Problem Global activities are slowing down on a massive scale, sapping demand while big producers like Saudi Arabia and Russia tugged in a price war are raising productions.

At this rate, giant oil producers are set to run out of storage capacities within a few weeks or months. The US and Saudi Arabia Negotiations The oil market had a breather this week. Risk sentiment has improved, and it was also reported that the US and Saudi Arabia are in discussions to end the price war and bring some stability to the oil markets.

Investors will rely on political intervention to halt the freefall. An oil storage problem, higher storage costs, faltering demand and a significant rise in production are creating a perfect storm for the oil market.

The G20 Summit The G20 Summit is an international forum for the governments and central bank governors from 19 countries and the European Union to discuss global economic challenges. Non-member countries can also be invited to attend the summit. The Group of Twenty nations attending the summit represents more than 80% of the global GDP, which is why it is one of the most important events for the financial markets.

In the light of mounting geopolitical risks, and rising threats of protectionism, these face-to-face communications about pressing global economic and financial issues will be of utmost significance. Japan will take on the G20 chair and the main themes for the summit will be as per the following: Global Economy Trade and Investment Innovation Environment and Energy Employment Women’s Empowerment Development Health President Trump-Xi Meeting Aside from the main event, many leaders also hold side meetings. This time, the attention will be on President Trump and Xi meeting.

Investors had a breather on the news that the meeting between the leaders of the world’s largest economies will actually take place. Best Scenario Both parties are facing mounting pressures to reach a deal. In the US, farmers are being hit the hardest from retaliatory tariffs from China, which are causing some political backlash for President Trump.

China, on the other side, is trying to sustain growth. While it is “unlikely” that both leaders will agree on deep structural differences at the summit, it remains a faint possibility. Worst Scenario It is hard to foretell how the one-to-one meeting will go and how President Trump will handle the trade talks.

It may highly depend on the impulses of the US President. The Probable Scenario Investors are expecting a similar “show” that took place in Buenos Aires – some kind of cease-fire and promises to initiate more negotiations. Investors are aware of the long road ahead for a trade deal.

Any signs of de-escalation of trade tensions will bring some momentary relief because as long as there is some sort of dialogue without tariff threats, it will be positive for markets. Other Important Issues Populism The populist parties generally come with disruptive policies which result in a spike in economic and financial volatility. Bloomberg reported that around 70% of the world’s most important economies are under the control of populist governments or non-democratic regimes.

While this forum is supposed to be a powerhouse for global trade and investment and the associated global economic challenges, the increasing number of populist leaders may make it difficult for leaders to find unity. Iran Tensions The tensions between the US and Iran are set to loom large. Allies and rivals of the US criticized the last-minute pullback on Iran strikes.

We note that President Trump did not lose time in telling other countries why should the US protect the shipping routes for other countries when the US has become by far the largest producer of energy. President Emmanuel Macron plans to discuss the current flare-up with President Trump as the EU is increasingly concerned over the risk of conflict. We expect the discussions around the Iran risks to gather some attention as well.

Hong-Kong Protests It is unlikely that the Hong-Kong protests will be discussed at the summit. Beijing could not have been clearer when it says it won’t allow the protests to be brought up at the G20 as no foreign force has the right to interfere in its domestic affairs. Stock markets The stock market is in a similar stage as it was back in 2018 ahead of the summit.

The announcement of the meeting between China and the US at the summit had buoyed up the stock markets at a time when major central banks turned dovish as well. On Monday, we saw the hopes of trade progress waned, and stock markets struggled to find a firm direction. We expect the shadow of the G20 meeting to remain on the stock markets.

Would stocks rally after the G20 summit as it did after the last summit back in December 2018? As of writing, the US Treasury Secretary, Steven Mnuchin comments raised hopes of trade progress: ‘We were about 90% of the way’ on China trade deal, and there’s a ‘path to complete this.’ However, President Trump’s comments were less optimistic, which temper the “90% complete” remarks. It is increasingly difficult to rely on the messages coming from the White House.

Earlier this week, we saw President Trump ramping pressure on Iran to later pullback the strikes on the country at the very last-minute which prompted remarks from both allies and rivals. The incoherence in the trade messages forced investors to navigate the markets cautiously. Stocks are finding “cautious” upside momentum while investors are also pouring money in metals.

Gold reached a high of $1,439 this week. Leading up to the G20 summit, it is hard to see how can a trade deal be negotiated in the next couple of days or at the summit, but investors expect a hold off on the next round of tariffs and a promise to return to the negotiable table. *Please click on the link for below for the list of the G20 members and the invited countries and international organizations that will be present in Japan. https://g20.org/en/summit/about/#participants

Wednesday was the bearer of bad news for Australia. Despite the buoyant employment report which briefly lifted its local currency, the Australian dollar plummeted on Westpac’s rate cut forecasts and the news of China’s Coal Ban. Simmering diplomatic tensions could be the trigger behind the ban.

The news that the Dalian port in China has blocked imports from Australia emerged on Wednesday. It was also reported: The port would cap the overall coal imports for 2019. Other major ports elsewhere in China have delayed clearing times.

The delayed cargoes would not be included in the 12 million tonnes under the 2019 quota. Dalian, Bayuquan, Panjin, Dandong and Beiliang are the five harbours overseen by Dalian customs which will not allow Australian coal to clear through customs. Imports from Russia and Indonesia will not be affected.

Beijing and Canberra’s clash back in 2017 over cybersecurity and China’s influence in Pacific Island nations were already showing signs of Australia’s deteriorating ties with China. However, tensions increased again last month when Australia withdrew the visa of a prominent Chinese businessman, just months after barring Huawei from supplying equipment to its 5G broadband network. At the moment, the comments from China are: The goals are to better safeguard the legal rights and interests of Chinese importers and to protect the environment.

Customs were inspecting and testing coal imports for safety and quality Beijing has been trying to restrict imports of coal more generally to support domestic prices. The coal ban put additional pressure on the Australian dollar which plummeted against major currencies. The AUDUSD pair lost its recent bullish momentum and dropped to 0.70 level.

AUDUSD (Hourly Chart) Source: GO MT4

The Loonie Best Performing G10 Currencies After a tight campaign marred by scandals, Justin Trudeau secured another term as Prime Minister. Unlike a clear win in 2015, the Prime Minister did not pass the threshold of 170 seats and will lead a minority government. The governing party will be forced to depend on other parties to pass legislation.

The voting results show deep divisions in the country: The Liberals won in terms of seat numbers. The Conservatives won 121 seats in Parliament compared with 99 in 2015 and have won the popular votes claiming 34.4% over the Liberals’ 33%. Bloc Quebecois was a huge win as they gained 22 seats.

The outcome of the election is unlikely going to drastically change the dynamics in the Canadian markets. On a broader level, there are layers of similarities between the agendas of the different political parties which will help to reduce the uncertainties that generally arises from election results. However, the Liberals governing as a minority government will rely on smaller parties to push legislation which will be challenging.

In the money markets, the Canadian dollar was trading near three-months high against its US counterpart on the Liberals win. The loonie has been on an upswing this year backed mostly by strong economic data and is currently the best performing G10 currencies: Source: Bloomberg Terminal Canada's Economy The Canadian economy outperformed its rivals which allowed the Bank of Canada to keep its benchmark interest rate steady at 1.75% while other central banks have cut their own rates in response to the global backdrop. Employment Employment rose by 54,000 in September driven by gains in full-time work while the unemployment rate declined by 0.2% to 5.5%.

The growth was mostly seen in the self-employment and public sector employees. Source: Bank of Canada Wage Growth The Average Hourly Wage Rate year-on-year in September jumped to 4.25% and marked the strongest month in a decade. Source: Bloomberg Terminal The Wage-common, a wage measure that the Bank of Canada uses to capture the underlying wage pressures reflecting the common trend across data sources rose to 2.7% in the second quarter in 2019.

Source: Bank of Canada Inflation The Bank of Canada aims to keep inflation at the 2% midpoint of an inflation-control target range of 1% to 3%. The recent annual inflation rate stood steady at 1.9% but fell low of market expectations of 2.1%. However, inflation remains close to or on target since March 2019.

Business Outlook Survey The Business Outlook Survey indicator rose to 0.40 which shows a slight improvement in overall sentiment. However, due to the challenges in the energy sector, the sentiment in Prairies remain predominantly negative. The Loonie While major central banks have been cutting interest rates, the BoC has been reluctant to do so despite the global downturn because of the sound economic environment.

The Canadian dollar has been on the rise and has retained the number 1 spot among the G10 currencies against the US dollar. After the election, the prospects of growth-boosting fiscal policies combined with a resilient economy may keep the BoC on the sidelines. If there is a coalition between the Liberals and the NDP, there could be a much larger fiscal spending than originally expected.

Tax cuts would also help to boost consumer spending. Investors are expecting further divergence between the Fed and the BoC. While the BoC is expected to keep its interest rate on hold this year and until late 2020, the Fed is widely expected to cut rates.

In the short-term, we expect the loonie to benefit from the rate divergence and the fiscal boost. In the medium-term, the Canadian dollar may weaken as the effective implementation of the fiscal expansionary policy will lower the Canadian exchange rate. See our introduction to forex for more information, including currency trading for beginners here.