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.
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.
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.
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.
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.
Technically, the EUR/GBP completed a descending peak-trough series, establishing a downtrend, while the 200 DMA provided support on Friday.
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.
All times listed are EDT
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.
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.
5:00: Germany – ZEW Economic Sentiment: expected to rebound to -38.0 from -44.1.
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.
8:30: U.S. – Philadelphia Fed Manufacturing Index: expected to plunge to 11.0 from 16.8.
8:30: Canada – Core Retail Sales: seen to drop to 0.4% from 0.9% for the month of July.
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