September 17, 2019 / 7:49 AM / 5 months ago

Daily Briefing: The oil shock wears off

The shock of the weekend attacks on Saudi oil installations has dissipated as markets quickly refocus on tomorrow’s Federal Reserve decision.

A satellite image showing damage to oil/gas Saudi Aramco infrastructure at Khurais, in Saudi Arabia in this handout picture released by the U.S Government September 15, 2019

Market murmurs on Monday that the oil price spike might influence the Fed’s decision by providing ammunition for inflation worriers have been dismissed by most central bank watchers.

The increase in oil prices remains contained and the world is well supplied with crude despite the outage – now likely to be several weeks at least. At about $68.70 a barrel early Tuesday, Brent crude prices are up 14% from Friday and back to where we were in May of this year – and still some 13% down over this time in 2018.

For a world economy still puzzling over years of inflation that persistently undershoots central bank targets, this oil price move on its own will not change that picture, although the political and military implications of the attack and the tense U.S.-Iran standoff will weigh on confidence generally.

With China’s already vulnerable growth picture challenged more than most by higher energy prices, Shanghai underperformed overnight and lost almost 2% as the offshore yuan weakened to near 7.1 per dollar. Hong Kong stocks were down 1.4%. Japan’s markets, returning from a holiday on Monday, were more equivocal.

The benchmark Nikkei was little changed and any safety bid in the yen quickly unwound -- dollar/yen touched its highest since Aug 1. South Korea’s stocks were also left directionless. Wall Street losses overnight were a modest 0.3% or so, with futures flat first thing.

Gains for oil stocks offset vulnerable sectors like airlines. European stock futures were down about 0.2% before the open on Tuesday. With the Fed fully in focus on now, 10-year U.S. Treasury yields were around 1.84% after slipping about 5 basis points on Monday.

The dollar was stronger going into the Fed decision – perhaps still on the possibility the Fed might register a note of caution alongside the expected quarter-point cut and despite the pressure from the White House to ease policy dramatically. Euro/dollar dipped under $1.10 late yesterday and remained there first thing today.

Sterling was also lower after an inconclusive meeting between PM Boris Johnson and European Commission President Jean-Claude Juncker on Monday, before a UK Supreme Court hearing, starting on Tuesday, on the legality of Johnson’s suspension of parliament. A decision is unlikely before late next week at the earliest.

People protest outside the Supreme Court against Prime Minister Boris Johnson's decision to prorogue parliament, in London, September 17, 2019. REUTERS/Toby Melville

In emerging markets, MSCI’s currency index fell for the first time in 10 days and equities generally underperformed.

European corporate news is thin. AB Inbev is moving ahead with plans to list its Budweiser unit in Hong Kong. Traders say the stock could fall 1% on talk the company targets up to $4.85 billion from the IPO, half of the previous target.

The FT said Advent International, Cinven and the Abu Dhabi Investment Authority are teaming up to bid for ThyssenKrupp’s elevator business. Its shares are seen rising 1%.

A share placement in Zalando by top investor Kinnevik has sent shares in the German e-commerce company down 6.6% in early Frankfurt trade. Eni shares may fall after reports of an explosion at a refinery near the northern Italian town of Pavia.

The British supermarket and technology company Ocado reported retail sales growth accelerated in its latest quarter, helped by additional capacity from its fourth automated warehouse.

In airlines, which face higher fuel bills stemming from spiralling oil prices, Wizz Air has increased its fuel hedge position beyond its policy minimum levels, a first sign that airlines are taking steps to protect themselves from rising costs.

— A look at the day ahead from EMEA markets editor Mike Dolan. The views expressed are his own —

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