US Open – Markets react to Saudi oilfield attack, FX, Oil, Gold

The aftermath of this weekend’s drone attack on a Saudi Arabia oil facility that shut 5% of global oil output, drove oil prices as high as 20% at one point. The impact of the Saudi oil field attacks should have a temporary negative impact on the global economy.  With the US and other countries poised to tap their respective strategic reserves, we could see much of the record surge with crude prices slowly retrace.

It will take a lot to disrupt the bull case for US stocks and the today’s selloff that stemmed from the Saudi oil field attacks could see buyers eventually re-emerge.

The possibility of a US military escalation remains a key risk but that is probably not going to happen.  President Trump’s 2020 re-election bid cannot stomach a war and we should not be surprised if we continue to hear tough talk, and possibly further escalations in the Persian Gulf, with maybe a couple US coordinated air strikes that will look to avoid any loss of life.

With the Fed likely to deliver a few more rate cuts and with the recent progress in the trade war, we should see limited downward pressure with US equities.
Oil stocks could have a nice couple of days, while airline and cruise line stocks could see some pain.  Geopolitical risks will increase calls for a trading range or even for another pullback.

Currencies
The Saudi oil field attacks is driving safe-havens along with oil exporting currencies. The Canadian dollar and Norwegian krone are outperforming but we could see these gains slowly unwind as oil continues to come off its 20% surge.

Gold
Geopolitical risks and the Fed’s dovishness are likely to keep gold prices shining bright this week. Much of this week was expected to see markets chop until Wednesday’s Fed meeting. With the Fed concerned about geopolitical risks, mainly with the trade war, we will see greater calls for them to switch to an easing cycle. The situation will remain tense in the Persian Gulf and that may have been the straw that broke Powell’s mid-cycle adjustment back. Trade war and military conflict should help Gold have an easier time towards $1,600 an ounce.

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