The Monday Market Minute

  • Global stocks slide as Saudi oil attack, weak China factory data trigger sharp pullback in equity market sentiment.
  • Oil prices spike the most since 1991 after drone attacks spark fires in two key crude facilities, shutting down nearly 5% of global production.
  • President Donald Trump authorizes tapping the U.S. Strategic Petroleum Reserve to mitigate the Saudi shutdown, easing crude's gain in European dealing.
  • European stocks fall at the start of trading, with Germany's trade-sensitive DAX index leading decliners. Britain's FTSE 100 gets help from oil majors, but a strong pound keeps the benchmark pinned to the red.
  • Wall Street futures suggest the Dow will snap its eight-day winning streak with a triple-digit opening bell decline ahead of September Empire State manufacturing data at 8:30 am Eastern time.

Market Snapshot

Global stocks traded notably lower Monday, while oil prices surged the most in more than two decades, as an attack on two key Saudi Arabian oil facilities, as well as the weakest industrial output data from China in many years, hammered equity market sentiment.

Oil prices surged the most since the 1991 Gulf War in early trading, before paring gains to between $5 and $6 a barrel, after drone attacks on the Abqaiq and Khurais crude facilities in Saudia Arabia, which caused massive fires and shuttered nearly 5% of global production.

Some U.S. officials blamed Iran for the attacks, with President Donald Trump saying he was "locked and loaded" for a response "depending on verification." Iran, which has also been implicated in drone attacks on various oil tankers in the Strait of Hormuz, denies involvement.

Based on the attack on Saudi Arabia, which may have an impact on oil prices, I have authorized the release of oil from the Strategic Petroleum Reserve, if needed, in a to-be-determined amount....

- Donald J. Trump (@realDonaldTrump) September 15, 2019

With markets already on edge following the weekend attacks, investors were further rattled by industrial data from China which showed output slowing to a 17.5 year low last month, after falling some 4.4% from last year, with readings of both retails sales and fixed asset investment growth also disappointing analysts that cover the world's second-largest economy.

U.S. equity futures look set to pull back from the near-record highs that were reached last week, with contracts tied to the Dow Jones Industrial Average indicating a 105 point decline and those linked to the S&P 500, which has gained just under 20% so far this year, are suggesting a 10 point pullback for the broader benchmark.

Brent crude contracts for November delivery, the global benchmark, were seen 10.15%, or $6.11 higher from their Friday close in New York and changing hands at $66.13 per barrel in early European trading, after reaching as high as $71.95 per barrel earlier in the session, a near 20% gain that marked the biggest single-day spike since the Gulf War in 1991.

WTI contracts for October, which are more tightly linked with U.S. gasoline prices, were marked 9.6%, or $5.26 higher at $59.45 per barrel after trading as high as $63.34 at the start of the overnight session.

European stocks were also weaker at the start of afternoon trading, with the Stoxx 600 falling 0.41% as the euro held onto recent against the U.S. dollar, which Germany's trade-sensitive DAX performance index slumped 0.56%.

Britain's FTSE 100 was given some support from its oil majors, BP Plc (BP - Get Report) and Royal Dutch Shell plc (RDS.A - Get Report) , but a stronger pound, which traded at a seven-week high of 1.2441, as well as the broader market pullpack kept the benchmark pinned 0.17% lower by mid-day trading in London.

Overnight in Aisa, the region-wide MSCI ex-Japan index was marked 0.36% lower heading into the close of trading, while Japan's Nikkei 225 remained closed for a national holiday.

...The United States, because of the Federal Reserve, is paying a MUCH higher Interest Rate than other competing countries. They can't believe how lucky they are that Jay Powell & the Fed don't have a clue. And now, on top of it all, the Oil hit. Big Interest Rate Drop, Stimulus!

— Donald J. Trump (@realDonaldTrump) September 16, 2019

The overnight spike in global crude prices not only hit equity market sentiment, as concerns of a dangerously military conflict in the Gulf region escalated following comments from the President and other senior U.S. officials, but also raised the specter of a concurrent rise in inflation, particularly if the Saudi outages last for several weeks.

That concern was reflected in global government bond yields, which extended their surge from the past few weeks, taking benchmark 10-year U.S. Treasury note yields to 1.83%, some 10 basis points higher than 2-year notes and the highest levels in more than two months.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.15% higher at 98.42, while the safe-haven yen rallied from last week's multi-month low to trade at 107.75 in early Monday dealing.