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Oil surged along with gold and Treasury futures after a strike on the heart of Saudi Arabia’s oil production increased geopolitical risk concerns. US and European equity futures declined, while shares in Asia were mostly lower.
Oil posted its biggest ever intraday jump to more than $71 a barrel after a strike on a Saudi Arabian oil facility removed about 5% of global supplies, an attack the US has blamed on Iran.
In an extraordinary start to trading on Monday, London’s Brent futures leapt almost $12 in the seconds after the open, the most in dollar terms since they were launched in 1988. Prices have since pulled back about half of that initial surge of almost 20%, but were still heading for the biggest advance in more than three years.
By 07:00 on Monday morning, Brent crude was 10% higher and West Texas Intermediate added about 9%. Gold added 1.1% to $1,504.55 an ounce.
News of the devastating attack on the world’s largest crude exporter also sent currencies of commodity-linked nations higher, including the Norwegian krone and the Canadian dollar. Shares in Hong Kong underperformed after China data missed estimates and the yuan retreated. Equities in Australia and Shanghai were little changed, while South Korea rose after a holiday. US President Donald Trump said he has authorized the release of supplies from the country’s emergency fuel storage, known as the Strategic Petroleum Reserve, if that is needed. Gains in the yen eased.
“This weekend’s drone attacks on Saudi oil facilities mark a major setback to the global geopolitical landscape,” said Taimur Baig, chief economist at DBS Bank Ltd. “Other than helping some oil exporting companies, the overall impact of heightened risk is negative for global equities in the near-term.
”Sentiment for risk that’s gathered steam in recent weeks is being tested after the weekend’s developments in the Middle East. Trump said the US is “locked and loaded depending on verification” that Iran staged the attack on major Saudi Arabian oil facilities. Several administration officials said Sunday that they had substantial evidence that Iran was behind the attack, not the Iranian-backed Houthi rebels in Yemen who claimed responsibility.
Asian credit markets took the oil surge in stride. At least three borrowers in the region were marketing dollar bonds to investors on Monday. Investment-grade corporate note spreads widened only slightly, and Australia & New Zealand Banking Group Ltd. said higher oil prices are actually a net positive for credit in the region, which has many issuers and economies with ties to commodities.
Treasury yields jumped to six-week highs at the end of last week and global equities are coming off the back of a three-week advance thanks to easing trade fears and a new round of central bank stimulus. China factory, retail and investment data all missed estimates Monday, adding to the risk-off mood. Attention now shifts to the Federal Reserve meeting mid-week.
Saudi Arabia stocks declined, with the Tadawul All Share Index falling as much as 3.1% after the attacks. Markets in Japan are closed Monday for a holiday.
These are some key events to keep an eye on this week:
On Thursday, the South African Reserve Bank’s monetary policy committee will announce its decision on interest rates. Economists are not expecting a change.
The Federal Reserve is widely expected to lower US interest rates in response to slowing global economic growth and muted inflation. Chairman Jerome Powell will hold a post-decision press conference Wednesday.
The Bank of Japan monetary policy decision is on Thursday, followed by a briefing from Governor Haruhiko Kuroda.
Bank Indonesia and Bank of England also decide policy on Thursday.
Australia jobs figures are out Thursday.
Friday is quadruple witching day for U.S. markets. When the quarterly expiration of futures and options on indexes and stocks occurs on the same day, surging volatility and trading can follow.