Saudi Oil Attacks: What to expect from stocks and oil prices
Fawad Razaqzada September 16, 2019 6:53 PM
The Saudi news also triggered a safe-haven response in the wider markets with gold rising and most stock indices and US index futures falling.
After gapping about 20% higher as markets responded to the weekend attack on Saudi Arabia’s oil infrastructure — which reduced the nation’s oil output by more than half — oil prices have given back a significant chunk of those gains, although they still remain sharply higher on the day. The Saudi news also triggered a safe-haven response in the wider markets with gold rising and most stock indices and US index futures falling. Sentiment was hurt further by fresh signs that the ongoing US-China trade war was hurting activity at the world’s second largest economy. Industrial production in China rose by just 4.4% year-over-year in August compared with 4.8% in July and 5.2% expected. This was also the worst reading since February 2002. On top of this, retail sales growth slowed down again, this time to 7.5% compared to 7.6% in July and below expectations of 7.9%.
FTSE outperforms on oil, pound
Despite the latest slowdown signs in China and falls for global stocks in response to the Saudi news, the UK’s FTSE 100 managed to reclaim most of its lost ground before almost turning flat this morning. Other major indices were still lower at the time of writing, however. The FTSE’s relatively strong performance is hardly a surprise given that BP and Shell (both of which rose on the oil news) are among the heaviest weighted stocks in the index. However, stocks of insurance companies and International Consolidated Airlines Group fell, and that prevented the FTSE from rising more meaningfully. Also helping the FTSE was the fact that sterling eased off its monthly highs hit on Friday as the GBP/USD hit a key resistance area circa 1.2480 as investors awaited fresh Brexit-related headlines.
Oil attack implications
The oil attack means Saudi’s crude production capacity could be impacted for weeks and this could keep Brent prices and stocks of energy companies supported for a while. However, OPEC’s other members will be more than happy to step up production to make up for some of the short falls in Saudi’s regular crude production. US President Donald Trump has meanwhile already authorised the release of US reserves and this has helped to lower prices following the big spike overnight. However, the longer-term impact is unclear at the moment and depends on how severe or otherwise the damage is going to be. Also, with the US suggesting that Iran could have been behind the attack, there is a small risk that this could turn to something much bigger in the region, possibly involving US military action. However, if this turns out to be a one-off attack and everyone is convinced that it was indeed the Houthi rebels rather than the Iranian government, then in that case the situation could calm down pretty quickly.
Fed in focus
Source: eSignal and City Index.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.