Oil surged to four-month highs on Monday after weekend attacks on crude facilities in Saudi Arabia sparked supply fears, while shares in Asia extended losses as bleak economic data from China sapped investors’ appetite for riskier assets.
European and U.S. stocks market looked set to follow, with Eurostoxx 50 futures slipping 0.7 per cent, while futures for Germany’s DAX were down 0.9 per cent and those for France’s CAC 40, eased 0.5 per cent.
Wall Street was signalling a weak start, too, with E-Mini futures for the S&P 500 off 0.4 per cent.
Brent crude futures surged nearly 20 per cent at one point early in the day and U.S. futures jumped almost 16 per cent, both hitting their highest level since May.
But prices came off their peaks after U.S. President Donald Trump authorised the use of the country’s emergency stockpile to ensure a stable supply.
Trump also said the U.S. was “locked and loaded” for a potential response to the strikes on the Saudi facilities, which shut five per cent of world production, after a senior official in his administration said Iran was to blame.
That inflamed fears about Middle East tensions and worsening relations between Iran and the U.S., powering safe-haven assets, with gold up one per cent to $1,503.4 per ounce.
“The bigger issue is what premium markets will build in to reflect the risk of further attacks,’’ said Kerry Craig, Global Market Strategist, J. P. Morgan Asset Management.
“In the very near-term, we may also see a pick-up in safe-havens,’’ he added.
“Central banks are likely to look through the inflationary impact of higher oil prices but the added geopolitical risk to an already fragile backdrop will not go without notice.’’
MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.4 per cent after data showed China’s industrial production growth unexpectedly fell to its weakest pace in 17-1/2 years in August.
Painting a dour picture of the world’s second-biggest economy, China’s statistics bureau said the country faces increasing downward pressure from external uncertainties.
China’s blue-chip index eased 0.5 per cent, while Hong Kong’s Hang Seng index faltered about one per cent, despite expectations Beijing will soon announce more support measures.
Liquidity was relatively thin with Japanese markets shut for a public holiday.
In currency markets, the Saudi news pushed the yen up 0.2 per cent to 107.83 yen per dollar while boosting oil-exporter currencies such as the Canadian dollar, which rose 0.4 per cent.
“If risk appetite collapses due to fears of worsening Middle East tensions in the wake of any retaliation to the…attacks, some emerging markets could face a double whammy of pressures,’’ said Mitul Kotecha, Singapore-based senior emerging markets strategist at TD Securities.
He noted that the Indian rupee, Indonesian rupiah and Philippine peso were the Asian currencies most sensitive to oil shocks, given their economies’ dependence on crude imports.
The euro was little moved near a three-week top while the pound stepped back from Friday’s two-month highs to be last at $1.247.
That left the greenback down 0.1 per cent at 98.126 against a basket of six major currencies.
The Australian dollar, a major risk proxy, fell 0.3 per cent against the yen, snapping nine straight days of gains.
The kiwi dollar slipped to a one-week low on the yen.
“One immediate question this (attack) poses for bond markets is whether a further rise in the inflation expectations component of bond yields – which have proved historically sensitive to oil prices – will give this month’s sharp bond market sell-off fresh impetus,’’ said NAB analyst, Ray Attrill.
“Or will safe-haven considerations dominate to drive yields lower?’’
Futures for U.S. 10-year Treasury notes rose 0.3 per cent.
In the cash market, prices for both two- and ten-year Treasuries gained, ending a five-day bond sell-off and sending yields lower from near 1-1/2 month highs.
Investors are also awaiting the outcome of the U.S. Federal Reserve’s policy meeting on Wednesday, at which it is widely expected to ease interest rates and signal its future policy path.
“The markets will look to the Fed as a key pillar of support and that will increasingly be in focus for global markets as the week goes on,’’ JPMorgan’s Craig added.
