US stocks are setting up for another big fall on the open of trading on Thursday with a change in tact from the Federal Reserve and volatility in oil markets creating uncertainty. Dow futures are suggestive of a break of the March lows, technically triggering a new leg lower in US stocks.
The huge overnight spike in crude oil should be positive for US energy stocks but when the reason for the oil price rise is the possibility of supply disruptions, the benefit is not so clear-cut.
A Saudi Arabia-led coalition of Arab states began an air-strike campaign against rebels in Yemen in the early hours of Thursday in attempt to quell an uprising against the government and prevent civil war.
Crude oil skyrocketed with Brent moving over 5% higher; Yemen is not a big oil exporter in of itself but its Aden port is at a strategic location at the mouth of the red sea leading into the Suez Canal where most Middle Eastern oil leaves for the rest of the world.
The chance of actual supply disruption seems unlikely given that Egypt controls the bulk of the Suez Canal and was involved in the strikes. The volatility seen in oil markets was triggered by the airstrikes in Yemen but the real catalyst is the falling US dollar that has been triggering a rally in numerous commodities including gold, silver and copper.
Lower rates for longer as implied by the last FOMC meeting and weak US economic data is theoretically a positive for risky assets but there was supposed to be transition taking place from central bank stimulus to economic strength. At the moment US investors face a backdrop of less stimulus and less economic strength and it’s causing stocks to come off the boil.
Futures suggest the:
S&P 500 will open 16 points lower at 2,045 with the
Dow expected to open 107 points lower at 17,612 and the
Nasdaq 100 43 points lower at 4,286.
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