Oil soars after attack on Saudi facilities, poor China data drags on shares
16 September, 2019
Oil surged to four-month highs on Monday (Sep 16) after weekend attacks on crude facilities at key producer Saudi Arabia sparked supply fears, while shares in Asia extended losses as bleak economic data from China sapped investors' risk appetite.
Crude futures on both sides of the Atlantic hit their highest since May, but came off their peaks after US President Donald Trump said he had authorized the use of the US emergency stockpile to ensure stable supplies.
Trump also said the United States was "locked and loaded" for a potential response to the strikes on the Saudi facilities, which shut 5 per cent of world production, after a senior official in his administration said Iran was to blame.
That inflamed fears about Middle East tensions and worsening relations between Iran and the United States, powering safe-haven assets, with gold up 1 per cent to $1,503.4 per ounce.
"The bigger issue is what premium markets will build in to reflect the risk of further attacks," said Kerry Craig, Global Market Strategist, JP Morgan Asset Management.
"In the very near-term, we may also see a pick-up in safe-havens," he added.
"Central banks are likely to look through the inflationary impact of higher oil prices but the added geopolitical risk to an already fragile backdrop will not go without notice."
MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.36 per cent after data showed China's industrial production growth skidding to its weakest pace in 17.5 years in August.
Painting a dour picture of the world's second-biggest economy, China's statistics bureau said the country faces increasing downward pressure from external uncertainties.
China's blue-chip index eased 0.2 per cent while Hong Kong's Hang Seng index faltered about 1 per cnet.
Liquidity was relatively thin with Japanese markets shut for a public holiday.
E-Mini futures for the S&P 500 were off 0.5 per cent while those for the Dow fell 0.4 per cent.
BONDS AND CURRENCIES
In currency markets, the Saudi news pushed the yen up 0.2 per cent to 107.85 per dollar while the Canadian dollar rose 0.4 per cent in anticipation of higher oil prices.
"If risk appetite collapses due to fears of worsening Middle East tensions in the wake of any retaliation to the ... attacks, some emerging markets could face a double whammy of pressures," said Mitul Kotecha, Singapore-based senior emerging markets strategist at TD Securities.
He noted that the Indian rupee, Indonesian rupiah and Philippine peso were the Asian currencies most sensitive to oil shocks, given their economies' dependence on crude imports.
Indonesian stocks opened 2 per cent lower on Monday, marking their biggest intra-day drop since Aug 6.
The euro was little moved near a three-week top while the pound stepped back from Friday's two-month highs. That left the greenback down 0.1 per cent at 98.126 against a basket of six major currencies.
The Australian dollar, a major risk proxy, fell 0.5 per cent against the yen, snapping nine straight days of gains. The kiwi dollar slipped to a one-week low on the yen.
"One immediate question this (attack) poses for bond markets is whether a further rise in the inflation expectations component of bond yields - which have proved historically sensitive to oil prices - will give this month's sharp bond market sell-off fresh impetus," said NAB analyst Ray Attrill.
"Or will safe-haven considerations dominate to drive yields lower?"
Futures for US 10-year Treasury notes rose 0.3 per cent, indicating yields may slip when cash trading begins.
Global bonds were sold off last week, sending yields higher, led by a broader risk rally on hopes the United States and China would soon end their long trade war. Better-than-expected US retail sales data also boosted sentiment.
Investors now await the outcome of the US Federal Reserve's policy meeting on Wednesday at which it is widely expected to ease interest rates and signal its future policy path.
"The markets will look to the Fed as a key pillar of support and that will increasingly be in focus for global markets as the week goes on," JPMorgan's Craig added.