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Beyond the Numbers

Jump In Crude Oil Prices May Weigh On Wall Street
9/16/2019 9:00 AM

The major U.S. index futures are currently pointing to a lower opening on Monday following the notable upward move seen last week.

A spike in the price of crude oil may weigh on the markets, with brent crude futures showing the biggest intraday jump on record after a coordinated drone attack on Saudi Arabia’s oil industry.

Crude for October delivery is soaring $5.54 to $60.39 a barrel, raising concerns about the impact of higher energy prices on the already fragile global economy.

The jump in oil prices comes as attacks on an oil processing facility at Abqaiq and the nearby Khurais oil field cut Saudi Arabia’s daily crude oil output in half.

Responding to the news, President Donald Trump said he has authorized the release of oil from the Strategic Petroleum Reserve if necessary to keep the markets well supplied.

Trump also tweeted the U.S. is “locked and loaded” to the respond to the attacks, with Secretary of State Mike Pompeo pointing the finger at Iran.

A potential military conflict between the U.S. and Iran would weigh on a global economy that is already being dragged down by the U.S.-China trade war.

Later this week, the Federal Reserve is scheduled to announce its latest monetary policy decision, with the central bank widely expected to cut interest rates by another 25 basis points.

Trump has been pressuring the Fed for a larger rate cut, pointing to the stimulus announced by other central banks around the world.

“The United States, because of the Federal Reserve, is paying a MUCH higher Interest Rate than other competing countries,” Trump tweeted.

Following the strong upward move seen last Wednesday and Thursday, stocks showed a lack of direction throughout the trading day on Friday. The major averages spent the session bouncing back and forth across the unchanged line before closing mixed.

The Dow held on to a modest gain, inching up 37.07 points or 0.1 percent to 27,219.52, its best closing level in over a month, but the Nasdaq dipped 17.75 points or 0.2 percent to 8,176.71 and the S&P 500 edged down 2.18 points or 0.1 percent to 3,007.39.

Despite the mixed performance on the day, the major averages all moved to the upside for the week. The Dow jumped by 1.6 percent, while the S&P 500 and the Nasdaq advanced by 1 percent and 0.9 percent, respectively.

The choppy trading on Wall Street came as the major averages encountered some resistance as they climbed back within striking distance of the record highs set in July.

Signs of easing trade tensions between the U.S. and China and upbeat economic data generated some positive sentiment, but traders seemed wary of pushing stocks to new highs amid lingering uncertainty.

On the trade front, China's Ministry of Commerce revealed plans to exempt U.S. agricultural products, including soybeans and pork, from additional tariffs.

China will add the agricultural products to a list of 16 types of American-made products granted tariff exemptions as a sign of goodwill ahead of the next round of trade talks.

The Commerce Ministry also said it welcomes President Donald Trump's move to temporarily delay raising the rate of tariffs on $250 billion worth of Chinese imports.

Meanwhile, Trump said he would think about an interim deal with China but would prefer a full agreement as the world's two largest economies look to end the widening trade war.

"If we're going to do the deal, let's get it done," Trump told reporters on Thursday. "A lot of people are talking about it, I see a lot of analysts are saying an interim deal — meaning we'll do pieces of it, the easy ones first."

"But there's no easy or hard. There's a deal or there's not a deal," he added. "But it's something we would consider, I guess."

In U.S. economic news, the Commerce Department released a report showing U.S. retail sales increased by more than expected in August amid a jump in auto sales.

The Commerce Department said retail sales rose by 0.4 percent in August after climbing by an upwardly revised 0.8 percent in July.

Economists had expected retail sales to rise by 0.2 percent compared to the 0.7 percent increase originally reported for the previous month.

The stronger than expected retail sales growth came as sales by motor vehicle and parts dealers spiked by 1.8 percent in August after inching up by 0.1 percent in July.

However, Andrew Hunter, Senior U.S. Economist at Capital Economics, called the jump in auto sales "suspicious looking," noting the surge in the nominal value of motor vehicle sales is "hard to square" with the 0.7 percent increase in the unit sales reported by manufacturers.

Excluding the jump in auto sales, retail sales came in unchanged in August after surging up by 1.0 percent in July. Ex-auto sales had been expected to inch up by 0.1 percent.

A separate report from the University of Michigan showed U.S. consumer sentiment has rebounded by more than expected in the month of September.

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.

Tobacco stocks showed a significant move to the downside, however, with the NYSE Arca Tobacco Index tumbling by 2 percent.

Considerable weakness also emerged among gold stocks, as reflected by the 2 percent slump by the NYSE Arca Gold Bugs Index.

The weakness among gold stocks came amid a decrease by the price of the precious metal, with gold for December delivery sliding $7.90 to $1,499.50 an ounce.

Telecom and networking stocks also saw notable weakness on the day, while energy, banking and chemical stocks showed strong moves to the upside.

Commodity, Currency Markets

Crude oil futures are soaring $5.54 to $60.39 a barrel after slipping $0.24 to $54.85 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,510.10, up $10.60 from the previous session’s close of $1,499.50. On Friday, gold slid $7.90.

On the currency front, the U.S. dollar is trading at 107.85 yen compared to the 108.09 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.1029 compared to last Friday’s $1.1073.

Asia

Asian stocks ended mixed on Monday as oil prices surged and investors remained focused on the upcoming Fed meeting for directional cues. Weak Chinese data also kept investors nervous. Markets in Japan and Malaysia were closed for public holidays.

Oil prices soared, with Brent crude posting its biggest intraday percentage gain since the Gulf War in 1991 following multiple drone attacks over the weekend on Saudi Arabia's crude oil production facilities.

U.S. President Donald Trump said the U.S. is "locked and loaded depending on verification" for a potential response to the attacks, while Yemen's Houthi rebels claimed responsibility for the attacks.

Chinese shares ended largely unchanged as trading resumed following a three-day holiday weekend. The benchmark Shanghai Composite Index finished marginally lower at 3,030.75, while Hong Kong's Hang Seng Index fell 0.8 percent to close at 27,124.55 after the release of weak data from China.

Chinese industrial output growth unexpectedly weakened to 4.4 percent in August from the same period a year earlier, the slowest pace since February 2002 and down from 4.8 percent in July. Retail sales and investment figures also disappointed amid rising trade pressure and softening domestic demand.

Australian markets ended roughly flat despite sharp gains in the energy sector on the back of a surge in global oil prices. The S&P/ASX 200 Index inched up 4.30 points or 0.1 percent to 6,673.50, while the broader All Ordinaries Index crept up 4.90 points or 0.1 percent to 6,782.00.

Banks ANZ, Commonwealth and Westpac fell between half a percent and 0.9 percent on concerns over slowing global growth. Higher iron ore and nickel prices boosted miners, with BHP shares jumping 3.2 percent.

Gold miners Evolution and Newcrest soared 3-4 percent as gold prices surged over 1 percent in futures trading. Northern Star Resources spiked almost 6 percent ahead of its presentation tomorrow to the Denver Gold Forum in the U.S.

Beach Energy, Woodside Petroleum, Santos, Origin Energy and Oil Search jumped 3-6 percent as global oil prices skyrocketed.

Bellamy's Australia surged 55 percent after the infant formula maker entered into a A$1.5 billion takeover agreement with China Mengniu Dairy Company and urged its shareholders to approve the deal.

On the other hand, Sims Metals Management slumped 13.3 percent. The metals and electronics recycler has warned that its results for the first half of the year will be "materially lower" than a year earlier due to the U.S.-China trade war and falling demand for cars.

Seoul stocks advanced as investor anxiety about the U.S.-Chinese trade war eased and investors looked ahead to the Federal Reserve policy meeting. The benchmark Kospi rose 13.02 points or 0.6 percent to 2,062.22.

Europe

European stocks have fallen on Monday after four days of gains as key data from China disappointed and attacks on Saudi Arabian oil facilities raised geopolitical concerns.

While the U.K.’s FTSE 100 Index has dipped by 0.2 percent, the German DAX Index and the French CAC 40 Index are both down by 0.6 percent.

Swedish retailer Hennes & Mauritz AB has shown a notable move to the downside after profits at its U.K. arm plummeted by 74 percent.

France KLM, Deutsche Lufthansa and easyJet have also tumbled as oil prices have surged after a drone strike on a Saudi Arabian oil plant.

On the other hand, energy giant BP Plc, Royal Dutch Shell and Total SA have rallied along with the price of crude oil.

U.K. and Irish-based explorer Tullow Oil has soared after the firm announced it has made a second oil discovery off the coast of Guyana.

U.S. Economic Reports

New York-area manufacturing activity was little changed in the month of September, according to a report released by the Federal Reserve Bank of New York.

The New York Fed said its general business conditions index dipped to 2.0 in September from 4.8 in August, although a positive reading still indicates an increase in regional manufacturing activity. Economists had expected the index to edge down to 4.0.

Looking ahead, the New York Fed said indexes assessing the six-month outlook suggested that optimism about future conditions waned.

Stocks In Focus

Shares of General Motors (GM) are seeing notable pre-market weakness after nearly 50,000 members of the United Auto Workers union went on strike early Monday amid a contract dispute with the auto giant.

Cannabis producer Aurora Cannabis (ACB) may also move to the downside after Stifel Nicolaus downgraded its rating on the company’s stock to Sell from Hold amid concerns about the near-term outlook.

On the other hand, shares of Alder BioPharmaceuticals (ALDR) are moving sharply higher in pre-market trading after the biopharmaceutical company agreed to be acquired by Denmark’s Lundbeck for nearly $2 billion in cash.

Aimmune Therapeutics (AIMT) may also see initial strength after a FDA panel recommended approval of the company’s treatment for peanut allergies in children.
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