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Briefing highlights

  • What tensions could mean to the oil market
  • Markets at a glance
  • Cenovus in $500-million sale
  • Markets await Poloz speech
  • What to expect on Canadian GDP
  • What else to watch for this week

As RBC's head of commodity strategy in New York, Ms. Croft is closely monitoring the mounting tensions to determine what they could mean for the Iranian nuclear agreement, and, thus, crude supply and prices.

And warning about the "precarious" nature of it all.

She was referring in a recent report to President Donald Trump's comments on the multination deal, which allows for an easing of sanctions amid nuclear restrictions on Iran.

"President Trump's speech at the UN [last] week, as well statements by senior administration officials, underscored just how precarious U.S. participation in the Joint Comprehensive Plan of Action (JCPOA) really is, as well as the strong possibility that the White House will opt to decertify Iran next month," Ms. Croft said.

Mr. Trump has to certify to Congress, every three months, that Iran is meeting its commitments under the nuclear agreement, and the next chance to do that is in mid-October.

And while the world has been glued to America vs. North Korea, troubles are escalating here, too.

Mr. Trump warned about Iran's missile capacity in his UN speech last week, prompting a response from the Iranians to, basically, screw off.

Then, over the weekend, Iran announced it had tested a medium-range Khorramshahr missile, defying Mr. Trump with a weapon that boasts a range of 2,000 kilometres and the ability to carry many warheads.

The test was broadcast on state TV, and the U.S. president responded with this tweet: "Iran just test-fired a Ballistic Missile capable of reaching Israel. They are also working with North Korea. Not much of an agreement we have!"

A TV grab taken on September 23, 2017 from the Iranian Republic Islamic Broadcasting (IRIB) shows a missile being launched from an undisclosed location

"Trump administration officials have demanded enhanced international inspections of Iranian facilities – including military sites – as another key precondition for remaining in the JCPOA," Ms. Croft noted.

"We also contend that such a request will also be dead on arrival in Tehran," she added in her report, before the latest missile test.

"In the event that Trump opts to decertify Iran, a debate will commence in Congress on whether to reinstate sanctions that prohibit investment in the Iranian upstream sector and call for consuming countries to make significant reductions in Iranian crude oil imports every six months."

In its latest outlook, Société Générale also warned of this risk, though the road to sanctions is unclear.

"In a low-probability but high-impact scenario, the U.S. could unilaterally reimpose banking and financial sanctions on Iran; this could quickly remove a large volume of crude (of the order of 1 million barrels a day or more) from the markets and provide $5 of upside for crude prices; however, the upside would be limited by high commercial crude stocks and also by quick increases in replacement sour crude from Saudi Arabia, Russia and other countries," said Mike Wittner, Société Générale's global head of oil research.

Mr. Trump is obviously leaning toward, and certainly sending signals that, he'll shoot down Iran in mid-October.

"It appears increasingly likely that Trump will not certify," Mr. Wittier said, pointing out that that wouldn't kill the agreement.

"However, it would pass the issue to the U.S. Congress and give them the option to re-impose sanctions on Iran," he added.

"This would be a very big fight. Speaker [Paul] Ryan has said that he supports keeping the nuclear deal in place."

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To an extent markets are now growing bored of this childish posturing from Trump and Kim Jong-un

IG market analyst Joshua Mahony



Markets at a glance

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Cenovus in $500-million sale

Cenovus Energy Inc. is selling certain oil and natural assets in southern Alberta to International Petroleum Corp. for more than $500-million.

The Suffield operations include assets on Canadian Forces Base Suffield.

"We're right on target with the financial plan we put in place to deleverage our balance sheet following our recent transformational acquisition of assets in western Canada," chief executive officer Brian Ferguson said in a statement, referring to the company's plan to use the money to cut its bridge facility.

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What to watch for this week

We'll learn a lot more about the state of Canada's economy over the next few days.

In particular, everyone wants to hear what Bank of Canada governor Stephen Poloz has to say, given that we haven't heard from him since July.

He's speaking to the St. John's Board of Trade Wednesday, followed by a news conference, and markets will be watching closely.

Bank of Canada Governor Stephen Poloz takes part in a news conference in Ottawa, Ontario, Canada, July 12, 2017.

"It should be closely watched for discussion on both the recent rate hike on Sept. 6 and BoC views on a possible hike at the Oct. 25 rate meeting and [monetary policy report] release," said economists at RBC.

"Poloz should have seen preliminary results of the next business outlook survey (released on Oct. 16) by the time of the speech, with the summer BOS release seeming to be instrumental in the BoC's hawkish shift in June."

Then on Friday, we'll get the first glimpse of how the third quarter is shaping up when Statistics Canada reports on how the economy fared in July.

Remember that that economic growth in the second quarter came in at an amped-up annual pace of 4.5 per cent.

Economists expect something slower for the third quarter, with July growth a projected 0.1 per cent.

"July will be a taste of things to come, with growth in the third quarter likely to cool to a 2-per-cent or so pace – less than half of what we saw in Q2," said CIBC World Markets economist Nick Exarhos.

"With less slack in the economy, and tightening from the BoC capping how hot growth can run, 2018 is going to clip a pace that's roughly 1 per cent lower than what we're likely to see this year."

The rest of the calendar:

Tuesday

Federal Reserve chair Janet Yellen speaks to a Cleveland event on "inflation, uncertainty and monetary policy."

Investors also get a measure of the U.S. housing market with the release of the S&P/Case-Shiller home price index for July.

Wednesday

Besides Mr. Poloz - and whatever Donald Trump and Kim Jong-un might have to say, of course - it could be a tad boring.

(Mr. Poloz is no Rocket Man, though he has been known to light the loonie's fuse.)

On the corporate side of things, AGF Management reports quarterly results.

Thursday

It's always an event when BlackBerry Ltd. releases its quarterly earnings.

Friday

We close out the week with Statistics Canada's GDP report, a bunch of economic numbers from Japan, and where inflation's running in the euro zone.

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