Capital Markets: "Oil Surge Pared, Markets Remain on Edge"

From Marc to Market:

Overview: Oil prices surged in the initial reaction to the unprecedented drone attack on Saudi Arabia facilities. Saudi Arabia may be able to restore around half of the lost production in a few days. Saudi Arabia and other countries, including the US, prepared to tap strategic reserves, oil prices have seen the initial gains halved. Brent is trading near $65 after finishing last week near $60. WTI is trading near $59, having been almost at $64 from a little below $55 before the weekend. Global equities are mixed. Hong Kong and Indian shares led the losses, while South Korea and Taiwan advanced. China was mixed, and Japanese markets were closed for a national holiday. European's Dow Jones Stoxx 600's four-day advance is at risk. Energy is the only sector that is gaining today, leaving the index off about 0.5% midday. US shares are trading with a downside bias. Asian yields adjusted higher, reflecting the pre-weekend US increase, while European benchmark 10-year yields slipped as mostly 2-4 bp lower. The main exceptions are UK Gilts, where the yield is five basis points lower, and Italian BTPs, where the yields have edged higher. The 10-year US yield pulled back from the 1.90% seen before the weekend. The US dollar is mixed. The yen was bought alongside the (sometimes) oil-sensitive Canadian dollar and Norwegian krone. All three have seen early gains trimmed. Sterling, which rallied strongly last week, is trading heavier ahead of Prime Minister Johnson's meeting with outgoing EC President Juncker. The liquid, accessible emerging market currencies, including the South African rand, Turkish lira, Hungarian forint, and Mexican peso are all trading heavier. Gold is near $1500, the midpoint of the wide range seen already today.

Asia Pacific
Poor Chinese data fans expectations that officials will provide more economic support. August data show the economy has weakened further. Investment in fixed assets slowed to 5.5% year-over-year, down from 5.7%. Economists hoped for an unchanged report. Industrial production eased to a 4.4% year-over-year pace, down from 4.8% in July. The median forecast in the Bloomberg survey was for a 5.2% increase. The median estimates also expected retail sales to rise by 7.9% from 7.6%. Instead, it slowed to 7.5%.

Reports indicate the US and Japan may sign a joint statement that will exempt Japan from any tariff or quotas the US levies on imported autos. Trump and Abe are still thought to be on track to sign the outline of a trade agreement next week on the sidelines of the UN General Assembly. Japan is expected to grant the US similar terms for its agriculture that Japan had extended to others via the Trans-Pacific Partnership and the free-trade agreement with the EU.....MUCH MORE