The impact of a surge in oil prices for Asia markets

Geopolitical concerns struck again at the start of the week after 5% of the global oil supply was seen affected over the weekend with a drone attack upon Saudi Arabia’s oil facility.

A week focused on central bank meetings look set to be overshadowed at the start with the latest spike in crude oil prices.

Risk sentiment plunges

Needless to say, we have seen sentiment plunge with the surprise attack that disrupted a key source of the global crude oil production. While it takes a couple of days for oil production to resume according to reports, it is the risk of further escalation that continues to cast a shadow across markets. As President Donald Trump noted in his latest tweet, the US is ‘locked and loaded’ and there is a ‘culprit’ awaiting confirmation, spelling of the likelihood that this may not be a one-off event affecting markets. Expect the market to fade the initial impact of the over 13% rise in Brent Crude as seen with the black candle on the daily chart this morning, but the potential for prices to further rise should not be ruled out.

Looking at prices, USD/JPY had led with the negative reaction, trading below $107.60 levels into Monday morning and putting a pause to the recent uptrend. Consequently, for the equity market, US futures were last seen in declines. While the ASX 200 appeared to have the conflicting impact of rising energy prices and deterioration in risk sentiment, it was nevertheless last seen in red. Look to the rest of Asia to partake the decline going into Monday, ahead of the slew of central bank meetings that will be the highlight in the later half of the week. USD/JPY seeing immediate support at around $107.43 ahead of $106.74 amid the short-term downside bias for prices.

Economic impact of rising crude oil prices

More than the influence upon sentiment, it is also the effect of a sudden surge in crude oil prices that would affect Asia markets going forward. Amid a situation where we are seeing global slowdown manifesting crucially in the manufacturing sector, the surge in prices of an important commodity could leave Asia markets with unintended inflation while hurting the major importers. While the likes of Japan and Malaysia are away at the start of the week, look to the rest of Asia reacting towards this, particularly the impact upon various industrial names.

China’s August industrial production, retail sales and fixed asset investments will also be key data to await this morning.

Friday: S&P 500 -0.07%; DJIA +0.14%; DAX +0.47%; FTSE +0.31%

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