Dow poised to snap 8-session win streak as oil market’s historic supply disruption rattles

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U.S. stock-indexes on Monday were set to pull back from record-range and the Dow was set to halt a win streak at eight consecutive days as a weekend attack against Saudi Arabia’s oil-production facilities unsettled global markets and sent crude prices rocketing higher.

The attacks playing out in the Middle East come as stocks are on the brink of fresh all-time highs ahead of a eagerly awaited gathering of central bankers, headlined by the Federal Reserve’s interest-rate decision on Wednesday.

How are major benchmarks faring?
Futures for the Dow Jones Industrial Average YMU19, -0.34% were down 96 points, or 0.4%, at 27,122, with an eight-day rally in jeopardy. S&P 500 index futures ESU19, -0.31% declined 9.65 points, or 0.3%, at 2,996.75, while Nasdaq-100 futures NQU19, -0.45% fell 41.75 points, or 0.5%, at 7,844.

Friday trade left the Dow DJIA, -0.43% 0.5% from its record at 27,359.16 hit on July 15, while the S&P 500 SPX, -0.33% stood about the same distance from its all-time high at 3,025.86 set on July 26. The Nasdaq Composite Index COMP, -0.40% was 1.8% from its all-time closing high at 8,330.21, also hit on July 26.

What’s driving the market?
Wall Street is fixated on an attack of Saudi oil production facilities that happened on Saturday, knocking out 5.7 million barrels of daily production, representing about 5% of the world’s oil output.

The largest-ever disruption to oil production, as it has been described by experts, has momentarily overshadowed a much-anticipated gathering of the Fed on Sept. 17-18 and unsettled the investment community even as all three major stock benchmarks stand on the verge of carving out record peaks.

West Texas Intermediate crude for October delivery CLV19, +9.63% the U.S. benchmark contract, was up more than 10%, or $5.71, at $60.54 a barrel on Monday, set for its biggest one-day climb since February of 2016, while November Brent crude BRNX19, +10.26% jumped more than 19% at its peak, which would have marked its sharpest-ever daily rise, but has since pulled back to a gain of $6.58, or almost 11%, to trade at $66.75 a barrel. That would also mark the sharpest daily run-up for the international benchmark grade since 2016.

Surging oil prices hold the potential to disrupt the global economy if the rise is sustained, experts say. Climbing prices would also come as global economies, including China, a major importer of oil, have shown signs of economic strains.

On Sunday, President Trump said he authorized the release of oil, if needed, from the Strategic Petroleum Reserve, or SPR, to mitigate any price surges. The U.S. holds about 630 million barrels of oil in the reserves, which is viewed as the biggest such stockpile of crude.

However, market participants are worried about the duration of the oil disruption to Saudi Arabia’s production and the possibility of further escalation between Saudi Arabia and those responsible for the Saturday attack of its Abqaiq plant and Khurais oil field. Houthi rebels have claimed responsibility for the attack but the U.S. has blamed Iran, which the Islamic Republic has forcefully denied.

Washington and Tehran are locked in their own dispute after Trump pulled out of a global nuclear pact with the country and imposed fresh sanctions on its oil exports.

Still, some strategists appeared somewhat sanguine about the impact of the Middle East drama on U.S. markets.

“It will take a lot to disrupt the bull case for US stocks and the today’s selloff that stemmed from the Saudi oil field attacks could see buyers eventually re-emerge,” wrote Edward Moya, senior market analyst at brokerage OANDA, in a daily research note. “The possibility of a US military escalation remains a key risk but that is probably not going to happen,” he said.

Investors were also looking forward to a meeting of the Federal Reserve’s interest-rate setting committee beginning Tuesday and concluding Wednesday, after which Chairman Jerome Powell will announce the central bank’s latest policy decision.

Expectations that the Fed will cut interest rates a second time this year, by a quarter percentage point to between 1.75% and 2% have fallen in recent days, after surprisingly strong consumer price-growth and retail sales data released last week spoke to the strength of the U.S. economy.

Fed funds futures markets now place a roughly 80% chance that the Fed will cut rates Wednesday, down from about 95% last week, according to CME Group.

Which stocks are in focus?
Shares of oil producers Exxon Mobil Corp. XOM, +2.02% and Chevron Corp. CVX, +1.63% were set to lead the Dow Jones Industrial Average higher on Monday, with Exxon shares up 4% in premarket action, while Chevron Corp.’s stock rose 3.5%.

Walt Disney Co. DIS, -0.98% chief executive Robert Iger has resigned from the board of Apple Inc. AAPL, -0.10%, the company said Friday evening. Earlier last week, Apple revealed a new streaming service that will compete with a planned service by Disney.

Shares of General Motors Co. GM, -2.70% fell 2.5% in premarket trade, after nearly 50,000 United Auto Workers went on strike amid negotiations between worker and management for a new four-year contract.

How are other markets trading?
The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, -2.18% fell 6 basis points to 1.84% after the bond market saw the biggest weekly sell off in several years. Bond prices fall as yields rise.

Gold prices GCZ19, +0.60% jumped 0.8% to $1,511.60 an ounce, while the U.S. dollar DXY, +0.25% relative to a basket of leading rivals.

In Asia overnight Thursday, Hong Kong’s Hang Seng Index HSI, -0.83% fell 0.8%. In Europe, the Stoxx Europe 600 SXXP, -0.41% fell 0.4% while the U.K.’s commodity-heavy FTSE UKX, -0.30% declined 0.2%.

MarketWatch

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst at OANDA

With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏

Ed Moya

Ed Moya

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