WASHINGTON – Monday’s crazy trading action was mostly triggered by traders’ and investors’ reactions to the rocket and / or drone attack that whacked Saudi oil production. Even so, stocks ended up only moderately to the downside. Averages got a boost from a long-overdue reactive rally in oil-related stocks. Naturally, Tuesday’s follow-on action on Wall Street showed that Mr Market is confused about it all. Adding to the confusion, China trade news and pre-Fed interest rate speculation crowded the stage.
Who, what, where, when and why? Confusion reigns over bombing attack on Saudi oil facilities
First of all, international governments involved in figuring out just where the attack on the Saudi oil facilities came from. Did the attack come from Iranian soil, via Iran’s Houthi clients in Yemen? Or from Iraq, or somewhere else? Consensus points to Iran. But no one, including the US, contemplates a military move against the Mad Mullahs. Just yet. No wonder Mr Market is confused.
ZeroHedge weighs in
The Tylers of ZeroHedge offer some color on the topic. (Bold and italic text via ZH.)
“The US has reportedly traced the cruise missiles used during a weekend attack that crippled half of Saudi Aramco’s oil production back to their point of origin: Iran. Or at least that’s what one US official is telling CBS News.
“According to US sources, 17 missiles or drones were fired, not the 10 the Houthis claim. Cruise missiles may have been used, and some targets were hit on the west-northwest facing sides, which suggests the projectiles were fired from the north, from Iran or Iraq.
“Investigators have reportedly identified the exact location, purportedly in southern Iran, where a combination of more than 20 drones and cruise missiles were launched against the Saudi oil facilities.
“Additionally, The Wall Street Journal reports that Saudi Arabia is increasingly confident that Iran directly launched a complex missile and drone attack from its southern territory on Saturday that battered the kingdom’s oil industry, according to people familiar with the investigation.
“‘Everything points to them,’ said a Saudi official who wasn’t authorized to speak to the media, referring to Iran…
“Nevertheless, lawmakers from both parties in Washington have expressed reservations about the prospects of an American military strike on Iran.”
Time for war? Maybe not…
With John Bolton gone, the Trump administration has reverted to cautious mode. The President may still think he can reason with the certifiably disturbed Iranian clerics running Terror Inc. But reason never works with dedicated, murderous quasi-religious fanatics. (Or card-carrying Commies for that matter.) So there could be a learning curve here.
Positive spin from the Saudis
The Saudi government waxed surprisingly optimistic Tuesday morning as to when they might restore the substantial oil processing capacity they lost in the surprise weekend attack. Accordingly, as US markets opened this morning, that optimism halted the rise of oil prices. And then some. Per barrel Brent and WTI oil prices lost over half the big gain they posted in Monday’s rally. Fox Business provides more details on Tuesday’s turnabout.
“Oil plunged Tuesday after Saudi Prince Abdulaziz bin Salman said at a press conference that the country’s oil production will be fully back online in the next few weeks.
“‘The damage has been contained,’ Prince Abdulaziz said, adding that 50 percent of the lost production has been restored.
“The kingdom was producing 9.6 million barrels of oil per day, or about 10 percent of the world’s daily production, before drone attacks cut production in half. It expects to ramp production up to 11 million bpd by the end of the month.
“Brent crude oil, the international benchmark was lower by 6.39 percent, or $4.41, to $64.61. West Texas Intermediate crude oil, the U.S. benchmark, was down $3.61, or 5.72 percent, at $59.30 a barrel.”
Improvements pending on the US-China trade front?
After spending Tuesday morning in the doldrums, Mr Market began to pay attention to some other equally pressing news items. Namely, the allegedly brightening picture on the US-China trade war front. Plus, experts expect the Federal Reserve to announce another interest rate cut Wednesday at 2 p.m. ET. No wonder Mr Market is confused.
But speculation in both areas caused stocks to brighten Tuesday afternoon, as CNBC reports.
“The Dow Jones Industrial Average turned positive in afternoon trading Tuesday after President Donald Trump said a U.S.-China trade deal could come soon.
“The 30-stock index traded just above the flatline after falling as much as 92.68 points, or 0.3%. The S&P 500 traded 0.1% higher while the Nasdaq Composite climbed 0.2%.”
[Update: All three major US averages – the Dow, the S&P 500 and the NASDAQ – managed to close up. But less than 1 percent apiece.]
“[President] Trump told reporters that China was buying U.S. farm products in a ‘big league’ way, noting a deal could come before the 2020 election or a day after.”
When it comes to the Chi-coms, one Should remember President Reagan’s mantra. “Trust, but verify.” Now back to our regularly scheduled CNBC clip.
… and Wednesday, the Fed Oracle speaks again. But will we like what the Oracle says?
“Gains remained muted as as the Federal Reserve kicked off a two-day monetary policy meeting. The meeting is scheduled to end Wednesday, when the central bank is expected to announce its latest decision on monetary policy.
“Market expectations for a 25 basis-point rate cut were at 63.5%, according to the CME Group’s FedWatch tool. However, the possibility of the Fed keeping rates unchanged has risen lately.
“‘The drama is centered on just how strongly the Fed will signal that it’s going to cut rates again by the end of 2019,’ Tom Essaye, founder of The Sevens Report, said in a note.”
Between 2:15 and 2:30 ET Wednesday, financial analysts will parse tomorrow’s Fedspeak. Then they’ll decide what the Fed really means in its latest oracular pronouncement. At which point the rich guys and the machines will move Mr Market up or down at will. We’ll be here to watch the fun. Or the horror as the case may be.
No wonder Mr Market is confused. So are we.
– Headline image: 2015 cartoon published by Saudi newspaper Al-Watan, lashing out at the sham U.S.-Iran agreement and subsequent cash payoff by the Obama Administration. The cartoon depicts Iran’s Supreme Leader Ayatollah Ali Khamenei force-feeding new Iranian oil money into the gaping mouth of an eager and presumably Iran-backed anti-Saudi terrorist. Seems the Saudis were right to be apprehensive based on this weekend’s well-planned bombing of the Kingdom’s oil facilities. (Hat tip: The DC and Al Watan)