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Here's What's Behind the Qatar Diplomatic Split

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A Saudi-led coalition moves to isolate Qatar, oil fluctuates off the back of rising Gulf tensions, and the U.K. gets back on its feet after a terror attack. Here are some of the things people in markets are talking about today.

Qatar quarrel

Markets across the Middle East were jolted this morning when Saudi Arabia, Egypt, Bahrain and the U.A.E. took steps to cut ties with Qatar, isolating the emirate by withdrawing diplomats, halting flights and shutting off its only land border. The proximate cause of the dispute, which pits several U.S. allies against each other, appears to be Qatar's friendlier ties toward Iran. The country's size belies its strategic importance: it hosts the forward headquarters of CENTCOM, the U.S. military’s central command in the Middle East, while its $335 billion sovereign wealth fund holds stakes in companies including Barclays Plc and Credit Suisse Group.

Oil jumps 

The contretemps helped sink Qatar's benchmark stock index by the most since 2009, but repercussions are being felt far beyond the tiny Gulf state. Brent crude rose as much as 1.6 percent to $50.74 a barrel on the London-based ICE Futures Europe exchange, before falling to $49.98 a barrel. In European trading, shares in energy companies extended their Friday losses. Situated close to the three largest OPEC producers, Qatar's relevance to oil markets is primarily geographic -- however it is the world's biggest exporter of liquefied natural gas.

London terror

Saturday night's terror attack in central London has helped ensure that the final stretch of U.K. election campaigning will be dominated by security debates. When electioneering resumed after a barely perceptible moratorium, Prime Minister Theresa May and Jeremy Corbyn, the leader of the opposition, resumed sparring over tactics for policing extremism. The pound was slightly down in early trading before erasing those losses, as traders awaited fresh opinion polls. Meanwhile, data published today show U.K. services activity expanded less than economists expected in May, with the IHS Markit's Purchasing Managers Index falling to 53.8 from 55.8 in April, as election uncertainty and tightening household budgets curb demand.

Markets lower

Overnight, Japan’s Topix index fell 0.1 percent, after closing Friday at the highest level since August 2015. Gold rose as much as 0.2 percent to $1,282.1 an ounce, hitting the highest since April. Treasury yields remained near the lowest in seven months after last week's U.S. jobs data missed estimates, and S&P 500 futures pointed to a slightly lower opening after the index hit a record on Friday. The Mexican peso registered the best performance against the U.S. dollar among 16 major currencies today, strengthening 1.6 percent as of 5:58 a.m. Eastern Time, as President Enrique Pena Nieto’s party looked to be narrowly ahead in the election for the governor of the country's largest state.

This week...

Although the U.S. Federal Reserve is in its traditional blackout period ahead of next week's decision, it's still a busy week for data. The ECB's monthly policy announcement on Thursday coincides with the U.K general election and scheduled Senate testimony from former FBI Director James Comey, while the French parliamentary election follows on Sunday. Central banks in Australia and India are also set to reveal policy decisions. U.S. non-manufacturing ISM for May is released at 10 a.m. Eastern Time, with analysts expecting a minor pullback to 57.1 in the headline figure. 

What we've been reading

This is what's caught our eye over the last 48 hours.

  • Odd Lots: Why everyone's talking about the VIX and 50 Cent.
  • Qatar versus Saudi Arabia: a Q&A.
  • Macron, the Trump troll.
  • ETFs fight for survival.
  • Corporations can be jerks.
  • Nate Silver on the weird U.K. polls.
  • Universal income is neither universal nor basic.
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