16 Sep 2019

Wall Street set to open lower after Saudi attacks; energy stocks surge

(Reuters) – Wall Street was set to open lower on Monday as the weekend attack on Saudi Arabian oil facilities knocked out 5% of the world’s supply, sparking concerns over global economic growth and heightening tensions in the Middle East.

FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., September 12, 2019. REUTERS/Brendan McDermid

The attack on the world’s biggest oil exporter sent oil prices up as much as 20% before they eased off their peaks as U.S. President Donald Trump authorized the use of the country’s emergency oil stockpile to ensure stable supplies. [O/R]

“The Dow futures aren’t down too terribly at this point, so we’ll have to wait and see,” said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

“I would worry more about what happens down the line and the increased uncertainty, prospects for military action.”

Shares of energy companies soared, with the S&P 500-listed Marathon Oil Corp MRO.O, Devon Energy Corp (DVN.N), Concho Resources Inc (CXO.N) and Apache Corp (APA.N) up between 9.7% and 12.8%. Oil majors Exxon Mobil Corp (XOM.N) and Chevron Corp (CVX.N) advanced more than 3.4%.

From a stock perspective, the supply disruptions should put a bid into U.S. energy stocks, which have meaningfully lagged the broader market, JPM analysts wrote in a note.

“In particular, we could see a positive move in the oily small and mid-cap group,” the analysts wrote.

The S&P 500 energy .SPNY sector’s 5.6% rise this year was much below the 20% climb for broader S&P 500 .SPX.

Meanwhile, shares of airlines and cruise line operators dropped in anticipation of higher fuel costs. American Airlines Group Inc (AAL.O), Delta Air Lines Inc (DAL.N) and Carnival Corp (CCL.N) fell between 3% and 5%.

Investors’ flight to safety lifted gold prices, the Japanese yen JPY= and sent the U.S. benchmark 10-year Treasury bond yields US10YT=RR down sharply from their multi-week highs.

Interest-rate sensitive banks such as Bank of America Corp (BAC.N), Citigroup Inc (C.N), JPMorgan Chase & Co (JPM.N) and Morgan Stanley (MS.N) were down more than 1%. [US/]

This week’s centerpiece is the Federal Reserve’s monetary policy decision on Wednesday where the central bank is widely expected to deliver the second interest rate cut this year of a quarter basis points.

Hints on whether the central bank will keep easing its monetary policy will be crucial in determining how long Wall Street’s strong rally will last.

Cooling trade tensions between the United States and China last week has brought the benchmark S&P 500 .SPX less than 1% below its record high.

At 8:26 a.m. ET, Dow e-minis 1YMcv1 were down 89 points, or 0.33%. S&P 500 e-minis EScv1 were down 9.25 points, or 0.31% and Nasdaq 100 e-minis NQcv1 were down 39.75 points, or 0.5%.

Among other movers, General Motors Co (GM.N) fell 2.4% after the United Auto Workers (UAW) went on strike on Sunday, the first nationwide strike at GM in 12 years.

Reporting by Medha Singh and Ambar Warrick in Bengaluru; Editing by Saumyadeb Chakrabarty and Arun Koyyur

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