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Week Ahead: Attack On Saudi Oil Output Will Drive Wild Ride For Markets

By Pinchas Cohen/Investing.comMarket OverviewSep 15, 2019 08:36AM ET
www.investing.com/analysis/week-ahead--attack-on-saudi-oil-output-will-drive-wild-ride-for-markets-200464718
Week Ahead: Attack On Saudi Oil Output Will Drive Wild Ride For Markets
By Pinchas Cohen/Investing.com   |  Sep 15, 2019 08:36AM ET
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  • Saturday's attack on Saudi oil facilities reshuffles next week's market expectations
  • All U.S indices posted third weekly gain at Friday's close
  • Treasury yields climb for an 8th day to a six-week high
  • Just when it appeared the stars were aligning for equity market bulls, with U.S. economic data improving, global monetary policy easing and hopes for a trade resolution looking more likely, a seemingly mysterious drone attack on a critical Saudi Aramco processing installation, Saturday, set the facility and the Kingdom's second largest oil field ablaze, halting production in those locations.

    What should have been a quiet upcoming week, as equities paused at record high prices ahead of Wednesday's crucial Fed policy meeting and the central bank's much anticipated interest rate decision, is set to become, instead, a wild ride with markets—and governments—on high alert for possible military escalation in the Middle East.

    New Tone For Next Week's Markets

    U.S. Secretary of State Mike Pompeo blamed Iran for the attack on the “world’s energy supply,” which was carried out by Houthi rebels based in Yemen, who are allied with Iran. The strike damaged half of the Desert Kingdom’s production, which amounts to 5% of the global oil supply.

    Pompeo accused Iran of pretending “to engage in diplomacy” while calling "for de-escalation.” In a tweet he said Iran will be "held accountable for its aggression."

    This weekend's events have set a new tone for next week's markets, even after all four U.S. indices—the S&P 500, Dow, NASDAQ and Russell 2000—climbed for a third straight week. Expect extreme volatility amid marked sector rotation.

    As well, oil will likely jump at the start of commodity market trade tomorrow, possibly by as much as $10 while other risk sectors may plummet.

    WTI Weekly
    WTI Weekly

    Even if the price of oil opens as much as $10 higher, it will still be below the $66.60 April high, whose peak must be bested to establish a medium-term uptrend.

    The S&P 500 slipped on Friday (-0.07%), with Real Estate leading the laggards, (-1.2%). Materials led the green sectors, (+1.13%).

    JPM Daily
    JPM Daily

    Financials also gained, (+0.83%). Global banks, including JPMorgan Chase (NYSE:JPM) (+1.97% on Friday, +6.77% for the week), rode the 10-year Treasury's yield jump to a record high for the bank's shares. The stock completed a H&S continuation pattern, suggesting further gains ahead.

    The Technology sector (-0.72%) slumped, however, pressured by Apple (NASDAQ:AAPL), (-1.94%), and Broadcom (NASDAQ:AVGO), (-3.41%), after the chipmaker warned on Thursday, during its Q3 2019 earnings report, that demand remains weak.

    The SPX advanced 0.96% on a weekly basis, with 8 of the 11 sectors in the green, led by Financials (+3.83%), Energy (+3.47%) and Materials (+3.32%). Yields on the U.S. 10-year Treasury note climbed for an 8th day to finish the week, hitting a six-week high. Technically, rates crossed above the downtrend line since May 3 and are now aiming for the downtrend line since Nov. 7.

    USD/JPY Daily
    USD/JPY Daily

    The dollar-yen pair ended lower on Friday, for the first time in five days, for the second time in nine days, after the greenback failed to best the 100 DMA, to close at the very top of a falling channel.

    Sterling posted the biggest weekly gain against the dollar since May, as well as its longest run of weekly gains since 2016 versus the euro, after the Times reported possible progress in Brexit negotiations related to the contentious Irish backstop. Prime Minister Boris Johnson will meet EU President Jean-Claude Juncker next week.

    EUR/GBP Daily
    EUR/GBP Daily

    Technically, the EUR/GBP completed a descending peak-trough series, establishing a downtrend, while the 200 DMA provided support on Friday.

    XAU/USD Daily
    XAU/USD Daily

    Gold has fallen to less than 0.1% from its lowest since Aug. 6. Technically, it found support at the bottom of a rising channel since late May, while both the RSI and the MACD provided sell signals.

    Week Ahead

    All times listed are EDT

    Sunday

    22:00: China – Industrial Production: previous read was 5.8%. Investors will watch to gauge the shifting narratives of the global economy amid the U.S.-Sino trade war.

    Monday

    21:30: Australia – RBA Meeting Minutes: market participants will sift through the language to ascertain the central bank's possible path of quantitative easing after being unclear about the threshold.

    Tuesday

    5:00: Germany – ZEW Economic Sentiment: expected to rebound to -38.0 from -44.1.

    Wednesday

    4:30: UK – CPI: seen to slip to 1.9% from 2.1% YoY, while rising to 0.5% from 0.0% MoM during August.

    5:00: Eurozone – CPI: likely to have remained flat at 1.0% YoY during August while jumping to 0.2% from -0.5% MoM.

    8:30: U.S. – Building Permits: probably slipped to 1.300M from 1.317M.

    8:30: Canada – Core CPI: was 0.3% in the previous read.

    10:30: U.S. – Crude Oil Inventories: previous read was -6.912M barrels.

    14:00: U.S. – FOMC Rate Decision: investors expect the Fed to trim its fund target rate range by 25 basis points this week.

    Thursday

    8:30: U.S. – Philadelphia Fed Manufacturing Index: expected to plunge to 11.0 from 16.8.

    Friday

    8:30: Canada – Core Retail Sales: seen to drop to 0.4% from 0.9% for the month of July.

    Week Ahead: Attack On Saudi Oil Output Will Drive Wild Ride For Markets
     
    Week Ahead: Attack On Saudi Oil Output Will Drive Wild Ride For Markets

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    Comments
    Alexis Hendriks
    Alexis Hendriks Sep 15, 2019 2:18PM ET
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    What happened with the Natural gas I have pos open on sell
    Bridgett Barber
    Bridgett Barber Sep 15, 2019 11:45AM ET
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    i am screwed , took position inverse lol.
    Pinchas Cohen
    Pinchas Cohen Sep 15, 2019 11:45AM ET
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    Sorry, Bridgett :(
    Guess it
    7German7 Sep 15, 2019 11:45AM ET
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    rip
    ali bakr
    ali bakr Sep 15, 2019 11:45AM ET
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    if etf you should be able to get out without ill effect.
    Adamo Nals
    Adamo Nals Sep 15, 2019 11:45AM ET
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    That’s what happens when you’re a millennial and you’ve only seen 10 years of Wall Street. You need to go through 3 10 year cycles to understand how the market works. I’m tired of millennials thinking that 2008 to 2019 is how Wall Street works and the Fed works. 2700 this week. Buy vxx calls spy puts and gld calls. Period
    Kent Beason
    Kent Beason Sep 15, 2019 9:05AM ET
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    Upper boll band of ~$58. At least that on open.
    MuraliKrishna Brahmandam
    MuraliKrishna Brahmandam Sep 15, 2019 9:05AM ET
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    right on
    MuraliKrishna Brahmandam
    MuraliKrishna Brahmandam Sep 15, 2019 8:59AM ET
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    this coming week will be very crude. no pun intended
    MuraliKrishna Brahmandam
    MuraliKrishna Brahmandam Sep 15, 2019 8:58AM ET
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    I am long crude futures but I have nothing to do with the drone.
    Oskari Kaarlela
    oskarik Sep 15, 2019 8:58AM ET
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    the fact that you said you have nothing to do with it, is incredibly suspicoius
    MuraliKrishna Brahmandam
    MuraliKrishna Brahmandam Sep 15, 2019 8:58AM ET
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    oskarikthat is why I said. I am long crude but I didn't do the drone
     
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