September 17, 2019


Global Commentary

Asian markets ended mixed on Monday as investors reacted to the weekend drone strikes in Saudi Arabia that knocked out half its oil production and sent crude higher by more than 10% in early trade. Also impacting markets was the release of the weakest Chinese industrial production growth in 17 years. Mainland China’s Shanghai Composite was flat following the data, closing down 0.02%, but Hong Kong’s Hang Seng dropped 0.83% as investors there were also worried about continued protests over the weekend. In Australia the S&P/ASX 200 finished 0.06% higher, with every sector falling, but gains from oil stocks offsetting the losses. South Korea’s Kospi led gainers, rising 0.64% and in Japan the Nikkei remained unchanged as markets there were closed for a public holiday.

European markets fell broadly in response to the weekend drone strikes in Saudi Arabia, with shares of oil stocks surging, but airlines and other groups sensitive to rising fuel costs falling. The pan-European Stoxx Europe 600 closed 0.58% lower, while Germany’s DAX lost 0.71% and the CAC 40 in France lost 0.94%. Over in London the FTSE 100 also closed down by 0.63%. Shares of BP and Royal Dutch were up by 4% and 2.1% respectively, while Air France-KLM dropped 3.2%.

In the U.S. markets also traded lower in response to the possibility of increased violence in the Middle East. The Dow Industrials led the way lower with a loss of 0.52%, while the S&P 500 lost 0.31% and the Nasdaq finished down by 0.28%.



Cryptocurrencies were mixed on Monday, but altcoins continued to show an uptick in strength as many gained on the day even though Bitcoin fell 0.4%. Number two coin Ethereum was the best performer in the top ten for the day, gaining 4% by the close. Litecoin also put in a solid performance as it added 3% for the day as well. The other top ten coins were up and down by less than 1%, and Bitcoin’s dominance dropped to 69.4%. Overall there was a bearish bias on the day as 61 of the top 100 cryptocurrencies finished the day with losses.



USD/JPY – The pair surprised on Monday as it gapped lower at the open in response to the weekend attacks in Saudi Arabia, but then refused to stay lower. Instead of dropping on safe haven buying in the Yen, the pair headed higher, trading back above the 108.00 handle by the close and erasing all of the losses from the open. The indication is that the pair will continue climbing.

EUR/USD – The pair fell fairly hard on Monday, losing nearly 75 pips and trading back down to the 1.1000 handle, where it found support for the time being. We could get a rebound of that support level, especially considering the recent action in the pair has created an upward trending channel. That said, there has also been a good deal of volatility and larger moves than usual in the pair. If it does continue dropping watch the 1.0926 level for support.



Metals – Precious metals gained Monday as the attacks on Saudi Arabian oil production facilities caused a jump in safe haven demand from rattled markets. December gold gained $12.00 on the day, or 0.8%, to settle at $1,511.50 an ounce. Separately, Silver for December delivery added $0.475, or 2.6%, to settle at $18.026 an ounce.

Oil – Crude oil rallied strongly on Monday as traders reacted to the weekend drone strikes on Saudi Arabian oil production facilities that shut down roughly 5% of the world’s crude supplies. October West Texas Intermediate crude added $8.05, or 14.7%, to settle at $62.90 a barrel. It was the largest one day gain for WTI crude since a 20% gain in January 2009. Meanwhile November Brent crude jumped $8.64, or 14.4%, to trade at $68.88 a barrel, posting its largest daily gain since December 2008. Crude is now trading at its highest levels since May.



DAX – Germany’s benchmark equity index fell 0.71% on Monday, with major banks leading losses. Shares of Commerzbank ended the day 3.8% lower, while rival Deutsche Bank lost 2.1%. The loss snapped an eight session winning streak for the DAX, and took the index off a four-month high. It isn’t certain for how long the spike in crude prices will continue pressuring equity markets, but once the headwinds are gone the DAX could resume its climb higher.

S&P/ASX 200 – Australia’s benchmark equity index edged up by 0.06% on Monday as gains from oil companies offset losses from every other market subsector. The gains came in response to the weekend drone strikes on Saudi Arabian oil production facilities, as West Texas Intermediate crude gained 10.4% and Brent crude was 11.6% higher, with both contracts on pace for their best daily gains since February 2016. Among individual stocks, Woodside Petroleum rose 4.31%, while Oil Search added 6.47%, and Beach Energy jumped 5.98%.


Caterpillar – Shares of the heavy equipment manufacturer were down 0.47% on Monday, but could be ready to pop higher if history is a guide. Data shows that Caterpillar is one of the top performing stocks in the week after oil posts a daily gain of 5% or more. On average the stock gains 1.49% in the week after the jump in crude prices, so things could get interesting for the rest of this week. Caterpillar should also be benefitting from the reduced trade tensions between the U.S. and China. If markets begin pricing in rising growth Caterpillar could be one of the biggest beneficiaries. In the short-term a move to the $140 level, which has been resistance for the stock, could be expected.

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