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GLOBAL MARKETS-Oil soars, stocks dip after Saudi supply shock

Stock MarketsSep 16, 2019 14:20
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© Reuters. GLOBAL MARKETS-Oil soars, stocks dip after Saudi supply shock

* Brent rallies on fears of global supply disruption

* Stocks slip, safe-haven gold and Japanese yen rise

* Saudi bonds at multi-week lows, oil-related currencies

* China industrial output growth weakens, hits risk appetite

* World FX rates in 2019: http://tmsnrt.rs/2egbfVh

(Adds details, updates prices)

By Danilo Masoni

MILAN, Sept 16 (Reuters) - Oil prices hit four-month highs

on Monday after attacks on crude facilities in Saudi Arabia

fuelled worries over the impact of an oil shock on economic

growth, halting a positive run in world stocks and bolstering

demand for safe-haven assets.

Brent crude futures LCOc1 rose nearly 20% at one point in

their biggest intra-day gain since the Gulf War in 1991, and

U.S. futures CLc1 jumped almost 16%, both hitting their

highest level since May. But prices came off their peaks after

U.S. President Donald Trump authorised the use of the country's

emergency stockpile to ensure stable supply. O/R

By 1126 GMT, Brent futures were up 10% at $66.33 per barrel,

while U.S. light crude was up 9.5% at $60.27.

The upheaval in the oil market and poor economic data from

China pushed gold prices, the Japanese yen and Swiss franc

higher and sent core euro zone bond yields lower, even though

the broader fallout on markets was not dramatic.

"While the attacks present yet another headwind for a global

economy that is already buffeted by deteriorating manufacturing

activity and elevated trade tensions, we don't believe that this

short-term disruption to oil production will trigger a global

recession," said Mark Haefele, CIO at UBS Global Wealth

Management.

"On the back of geopolitical and market uncertainties,

thematic gold exposure is still advised alongside

countercyclical positions such as Japanese yen longs," he added.

World stocks .MIWO00000PUS halted a four day winning

streak to trade slightly lower, down 0.15% on the day. European

shares .STOXX fell 0.4% and Wall Street signalled a weak

start, too, with futures for the S&P 500 ESc1 off 0.4%.

Monday's rapid spike in crude prices came at a time when

central banks in the United States, Europe and Asia are easing

monetary policy to fight a slowdown in the global economy amid a

drawn-out trade war between Washington and Beijing.

The U.S. Federal Reserve is due to hold its next policy

meeting on Wednesday, at which it is widely expected to ease

interest rates and signal its future policy path. FEDWATCH

Expectations of monetary policy stimulus have been helping

offset immediate concerns over the economy, supporting equity

prices. World stocks are trading just around 2% below the

all-time peak they hit in January 2018.

Data from China earlier on Monday underscored a slowdown in

the world's No. 2 economy, although that bolstered hopes of more

stimulus policies from Beijing to underpin the economy.

Industrial production in China grew at its weakest pace in

17-1/2 years, the data showed, amid rising U.S. trade pressure

and softening domestic demand. Citi strategist Dirk Willer said the impact of a sustained

rise in oil prices would be more pronounced for Europe and China

than for the United States, which is now a net crude exporter,

even though U.S. consumers would be hit.

"The U.S. may still be a relative winner. The size of the

shock obviously will depend on how much oil is taken off the

market," he said.

The weekend attack at Saudi Aramco's facilities shut down

about 5% of the world's supply and while the company had not

given a timeline for the resumption of full output, sources said

a return to normal volumes "may take months". SHINES, SAUDI BONDS HIT

Trump also said on Sunday the United States was "locked and

loaded" for a potential response to the attack on Saudi Arabia's

oil facilities, after a senior U.S. administration official said

Iran was to blame. That inflamed fears about Middle East tensions and worsening

relations between Teheran and Washington, powering safe-haven

assets, with gold XAU= up 1% to $1,504 per ounce. GOL/

Dollar-denominated bonds issued by Saudi Arabia's government

and state-oil firm Saudi Aramco tumbled to multi-week following

the attacks.

"Markets had become too sanguine over the last few months

about the geopolitical risks facing countries allied with the

U.S. against Iran, with Saudi Arabia particularly vulnerable,"

said Patrick Wacker at UOB Asset Management.

"While Saudi Arabia's sovereign fundamentals are still firm,

bond prices will need to factor in higher geopolitical risk

going forward," he added.

Appetite for safe haven assets pushed yen JPY= up 0.3% to

$107.7, while currencies of oil-exporting countries such as the

Norwegian crown NOK=D3 , the Canadian dollar CAD=D3 and the

Russian rouble RUB= were also in demand. The U.S. dollar .DXY was up 0.1% against a basket of

currencies.

Elsewhere in bond markets, core longer-dated euro zone bond

yields tumbled as the Saudi developments and the poor data from

China helping boosted demand for safe-haven assets. Brexit

uncertainty also weighed. Germany's 10-year benchmark DE10YT=RR was down at -0.479%

DE10YT=RR . Bund futures FGBLC1 rose 0.3%, while futures for

U.S. 10-year Treasury notes TYv1 rose 0.4%.

"While there are no doubt short-term inflationary

implications from an oil price shock, we would imagine that US

rates will fall, given rising growth fears," Citi's Willer said.

(Additional reporing by Swati Pandey in SYDNEY and Karin

Strohecker in LONDON; Editing by Toby Chopra)

GLOBAL MARKETS-Oil soars, stocks dip after Saudi supply shock
 

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