Energy stocks lift as Saudi Arabia and Russia extend oil supply cuts

Stocks fell on Tuesday to kick off the first trading day of a holiday-shortened week, weighed down by a jump in crude oil prices.

The jump was as a result Saudi Arabia and Russia extending their voluntary supply cuts. Saudi Arabia will continue its unilateral production cutback of 1 million barrels a day until December. Russia will extend its output cuts at the same time. West Texas Intermediate futures popped more than 1 per cent and briefly traded above $87 per barrel, reaching their highest levels since November.

Shares of Halliburton and Occidental Petroleum each added more than 2 per cent, while EOG Resources rose 1.8 per cent. The uptick in oil pressured airline and cruise stocks, with American Airline , United Airline, Delta Air Lines and Carnival shedding more than 2 per cent.

The Dow Jones Industrial Average lost 195.74 points, or 0.56 per cent, to finish at 34,641.97. The S&P 500 dropped 0.42 per cent to close at 4,496.83. The Nasdaq Composite edged down 0.08 per cent to settle at 14,020.95.

Treasury yields also popped, straining risk assets. The yield on the 10-year Treasury surged roughly 9 basis points to about 4.27 per cent.

Another hard-hit area included small-and midcap stocks. The S&P Small Cap 600 sank nearly 3 per cent for its worst day since February. The S&P Midcap 400 slumped about 2.3 per cent, and the Russell 2000 fell 2.1 per cent.

Over the extended holiday weekend, Goldman Sachs cut its recession odds to 15 per cent and said it anticipates the Federal Reserve skipping a rate hike at its policy meeting later this month.

While this could be seen as good news for the market, investors have to contend with seasonal effect in September, historically the weakest month for equities.

To be sure, some technical indicators have given investors hope in recent days. In a sign of positive short-term momentum, the major indexes broke above their respective 50-day moving averages last week.

The dollar climbed to a six-month high on Tuesday, while government bonds came under pressure, as investors weighed the future path of monetary policy and corporate debt issuance compounded market moves. The dollar rose 0.6 per cent against a basket of six peer currencies, touching its highest level since March.

Turning to US sectors, Energy was the standout out, following the news that Saudi Arabia and Russia will extend oil cuts. Materials was the worst.

Futures

The SPI futures are pointing to a 0.3 per cent fall.

Currency

One Australian dollar at 7:25 AM was buying 63.80 US cents.

Commodities

Gold lost 0.74 per cent. Silver dropped 2.81 per cent. Copper fell 0.09 per cent. Oil added 1.33 per cent.

Figures around the globe

European markets closed lower. London’s FTSE fell 0.20 per cent, Frankfurt slipped 0.34 per cent, and Paris closed 0.34 per cent lower.

Turning to Asian markets, Tokyo’s Nikkei added 0.30 per cent, Hong Kong’s Hang Seng lost 2.06 per cent while China’s Shanghai Composite closed 0.71 per cent lower.

The Australian sharemarket closed 0.06 per cent lower at 7,314.

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.

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