Stocks weak as Fed meets; oil down as Saudi output ‘rebound’ seen soon

Pound rebounds towards six-week high vs dollar

NEW YORK, Sept 17, (RTRS): Oil prices dropped sharply on Tuesday after a Reuters report said Saudi Arabia’s crude production could be fully back on line within weeks, quicker than initially thought following weekend attacks that halved the kingdom’s output.

Stocks inched lower and US Treasury yields slipped ahead of an expected interest rate cut by the Federal Reserve at the conclusion of its two-day policy meeting on Wednesday.

Oil prices retreated on Tuesday after a massive jump the day before, but the market remained on tenterhooks over the threat of retaliation for attacks on Saudi Arabian crude oil facilities on Saturday.

US crude fell 5.47% to $59.46 per barrel and Brent was last at $64.92, down 5.94% on the day.

MSCI’s All-Country World Index, which tracks shares across 47 countries, was down 0.1% on the day.

On Wall Street, stocks opened slightly weaker as investors shunned big bets ahead of the Fed’s policy decision.

The Dow Jones Industrial Average fell 40.62 points, or 0.15%, to 27,036.2, the S&P 500 lost 0.19 points, or 0.01%, to 2,997.77 and the Nasdaq Composite dropped 8.96 points, or 0.11%, to 8,144.58.

With the retreat in oil prices, shares of energy companies, which had risen hard on Monday, gave up a lot of the gains.

European shares slipped slightly even as investors sought refuge in oil stocks and defensive sectors in response to heightened volatility after the attacks in Saudi Arabia.

The pan-European STOXX 600 index lost 0.12%.

US Treasury yields edged lower as traders bided their time before the Fed decision on rates.

While a rate cut is seen as nearcertain this week, there are deep disagreements among Fed policymakers on whether a reduction in borrowing costs now or further decreases are warranted. Investors will focus on the so-called “dot plot,” which shows where policymakers expect rates to be in the future.

Investors were also watching an overnight spike in dollar funding costs after the overnight rate, or the cost for banks and Wall Street dealers to borrow dollars, surged to 10% on Tuesday, the highest since at least January 2003, according to Refinitiv data.

US

US stocks were little changed on Tuesday as investors moved to the sidelines ahead of the Federal Reserve’s two-day policy meeting, while the impact of weekend attacks on Saudi Arabia’s biggest oil refinery faded.

Equity markets took a hit on Monday as the attacks wiped out half of Saudi Arabia’s oil production, sending oil prices soaring, while fuelling geopolitical tensions.

But President Donald Trump’s statement that he does not want war and a Reuters report that Saudi Arabia was close to restoring 70% of the oil production lost calmed investor nerves.

The benchmark S&P 500 index recovered early losses to rise slightly, with the so-called defensive consumer staples , utilities and real estate sectors posting the biggest gains.

The energy index tracked a drop in oil prices, after recording its best oneday surge since January on Monday.

The US central bank concludes its policy meeting on Wednesday, with traders currently expecting a 63.5% chance of a quarter percentage point cut from the Fed this week, down from 88.8% on Friday, according to CME’s FedWatch.

Banks, which tend to underperform in a lower interest rate environment, fell 0.95% and were the biggest drag on the S&P 500.

Since the last interest rate cut in July, US economic data has shown mixed signals about the domestic economy. While strong retail sales and wage growth have bolstered consumer confidence, a protracted US.-China trade war has weighed on manufacturing and business sentiment.

Latest data showed US manufacturing output increased more than expected in August, rebounding from a drop in July, while homebuilders’ optimism grew unexpectedly brighter in September.

At 11:41 a.m. ET, the Dow Jones Industrial Average was down 22.68 points, or 0.08%, at 27,054.14, the S&P 500 was up 1.95 points, or 0.07%, at 2,999.91. The Nasdaq Composite was up 6.66 points, or 0.08%, at 8,160.21.

Among stocks, Chipotle Mexican Grill Inc rose 3.3% as it added a new steak dish to its menu in the United States for the first time in three years.

Home Depot Inc dropped 1.2% after Guggenheim downgraded the home improvement chain’s shares to “neutral” from “buy”.

Corning Inc tumbled 8.2% as the Gorilla glass maker cut its currentquarter display volume forecast.

UK

Britain’s blue-chip index ended flat on Tuesday as losses in oil major BP, triggered by a report that Saudi Arabia’s output could be back up quicker than expected, were countered by gains in so-called defensive sectors.

The FTSE 100 was marginally down at 0.01%. The FTSE 250 fell 0.1%, dragged lower by a collapse in the shares of fertiliser maker Sirius Minerals after the company cancelled the bond tender at the heart of a crucial project in northern England.

BP fell 1.4% as crude prices dropped after a top Saudi Arabian source told Reuters that production could be fully back on line within weeks following weekend attacks that halved the kingdom’s output.

Meanwhile, heightened geopolitical worries and global slowdown concerns have sent investors flocking to so-called defensive sectors such as healthcare and tobacco stocks, ahead of a widely expected rate cut by the U.S. Federal Reserve on Wednesday.

AstraZeneca and British American Tobacco were among the biggest boosts on the main index, countering a drag by the financial sector.

On the mid-cap, Sirius Minerals plunged more than 50% to an all-time low after it scrapped a plan to raise $500 million in a bond sale as the government turned down a renewed request for backing.

But Woodford Patient Capital Trust rose 2.3%. The listed fund run by money manager Neil Woodford named BenevolentAI as the company that Link Fund Solutions, its authorised corporate director, last week cut its stake valuation.

Among other London-listed companies, French Connection slid 13% to its lowest level in more than one year after the fashion retailer delayed its sale process for the second time, with conclusion now expected by end of the financial year.

Europe

European shares steadied on Tuesday as investors sought refuge in oil stocks and defensive sectors after attacks on Saudi Arabian oil facilities over the weekend heightened political tensions.

Trading in Europe’s main indexes was light after starting the week on a sluggish note following the attacks. Investors were also on the fence ahead of a US Federal Reserve policy meeting, where it is expected to cut interest rates for the second time this year.

The European healthcare, utilities, real estate and food and beverage indexes - commonly considered the defensive sectors - posted some of the biggest gains on STOXX 600.

The pan-European index was trading flat at 0845 GMT after scaling sixweek highs last week. The index has gained 15% so far this year.

Oil and gas stocks retreated from Monday’s gains as crude prices pulled back after the United States hinted at the possible release of crude reserves.

Shares in Zalando fell 10% after a share placement by top investor Kinnevik in the e-commerce retailer. The broader retail index fell 0.3%.

Among other stocks, Husqvarna fell 6.5% after the Garden equipment maker set new financial goals starting from 2020.

British clothing retailer French Connection slid 12.6% after its said it expects sale process to be concluded by the end of the year, and reported a smaller first-half operating loss on growth in its wholesale business in the United States.

Asia

Shares were mixed in Asia on Tuesday, led by declines in Chinese benchmarks after the credit ratings agency Moody’s downgraded Hong Kong, citing the city’s recent political turmoil.

The US and international benchmarks for crude fell back slightly after vaulting more than 14% overnight after an attack on Saudi Arabia’s largest oil processing plant.

Japan’s Nikkei 225 index recovered from early losses to edge 0.1% higher at 22,001.32 and South Korea’s Kospi was flat at 2,062.33. The S&P ASX/200 in Sydney added 0.3% to 6,695.30.

But the Shanghai Composite index skidded 1.7% to 2,978.71 and Hong Kong’s Hang Seng slipped 1.0%.

Oil

Oil prices are falling a day after their biggest single-day jump in years due to a weekend attack on a key Saudi Arabia energy facility.

US oil fell nearly 5% to $59.96 a barrel Tuesday while Brent, the international benchmark, is down 5.3% to $65.34. Both rose more than 14% Monday.

Saudi Arabia’s energy minister is expected to give an update on the country’s oil production at some point Tuesday.

The attack led to the biggest disruption of crude oil in modern history. In the US, auto club AAA warned of a potential 25-cent increase in the price of gasoline. The average price of a gallon of gas in the U.S. Tuesday is $2.59, according to AAA, up 3 cents from Monday.

Currencies

Sterling headed towards six-week highs against the dollar on Tuesday as investors continued to cut their short positions, even as Prime Minister Boris Johnson stuck to his pledge to take Britain out of the European Union by Oct 31.

Analysts said investors were continuing to reverse their bets against the currency as they worried about being caught on the wrong side should the pound further extend a rally it started last week.

A broader weaker dollar also helped the pound move higher on Tuesday.

The currency has firmed more than 3% in the past month, its gains accelerating after parliament passed the law ruling out no-deal Brexit. It jumped 1.3% last Friday, grasping at a headline – later denied – that Johnson’s Northern Ireland allies may soften their Brexit stance.

The pound was last up 0.4% at $1.2481 after losing ground on Monday.

Sterling on Monday touched a sixweek high of $1.2515. The currency was buffeted by the volatile dollar, which rose late on Monday as oil prices eased and trade tensions with Japan appeared to cool.

Traders are now preparing for the US Federal Reserve’s policy meeting this week.

Against the euro, sterling was flat at 88.56 pence having touched a threemonth high on Monday.

With less than seven weeks until the Brexit deadline, Johnson is hoping a Brexit deal can be clinched at an EU summit on Oct 17-18. He said a Brexit deal was emerging, but the EU said he had offered nothing to break the impasse.

Commerzbank noted that on options markets, insuring against a steep pound fall still carries a sizeable premium.