Oil Rises on Saudi Attacks as Dollar Pauses and Stocks Advance

Market Wrap-Up: Oil Supply Risks, AI Optimism, and Fed Expectations

Oil prices rose on Thursday after attacks in Saudi Arabia prompted the United States to order some diplomats and family members to leave its missions in the Kingdom. Brent crude futures gained 1.2% to $110.11 a barrel, while US West Texas Intermediate (WTI) crude rose 1% to $98.12.

The gains followed a largely unchanged close for Brent and a 67-cent decline in WTI on Wednesday.

The latest developments added to concerns over regional oil supply security. Yemen's Iran-aligned Houthis struck several targets on Wednesday, killing at least one person and injuring eight others at a civilian airport in Dammam, while a separate drone attack killed two people at a Saudi oilfield.

US crude inventories fell by 3.06 million barrels to 412.5 million barrels last week, according to the US Energy Information Administration, exceeding analysts' expectations for an 820,000-barrel draw. However, distillate inventories increased by 1.68 million barrels to 104.3 million barrels, compared with expectations for a decline.

Gold edged higher on Wednesday as falling US 10-year Treasury yields supported the non-yielding metal ahead of the Federal Reserve's October 27-28 policy meeting. Spot gold rose 0.3% to $4,137.94 an ounce after touching its lowest level since October 15 earlier in the session.

US gold futures for December delivery settled 0.2% higher at $4,150 an ounce. Investors are also awaiting next week's US Personal Consumption Expenditures (PCE) inflation report for clues on the monetary policy outlook.

The US dollar's recent decline paused on Thursday as investors prepared for a series of central bank meetings next week. The Federal Reserve is expected to hold interest rates at its October meeting, while markets continue to assess the possibility of an increase in December.

The European Central Bank is also expected to keep its benchmark rate at 2.5%, although a rate increase before year-end is largely priced in. In Japan, markets expect the Bank of Japan to hold rates next week, with the next increase to 1.5% anticipated early next year. Meanwhile, sterling traded at $1.33955, the Australian dollar stood at $0.7025, and the euro remained above $1.12.

On Wall Street, technology shares led gains on Wednesday after results from SpaceX and an upbeat forecast from Super Micro Computer improved sentiment towards artificial intelligence-related stocks. The Dow Jones Industrial Average rose 0.69% to 52,856.09, the S&P 500 gained 0.58% to 7,757.17, and the Nasdaq Composite advanced 1.05% to 26,702.86. 

Super Micro Computer shares jumped 9.6% after its revenue and profit-margin forecasts exceeded market expectations, lifting Hewlett Packard Enterprise by 3.7% and Dell by 5.3%. SpaceX shares gained 7.8% after the company reported its first profit as a public company. However, weaker earnings guidance weighed on Netflix, whose shares fell 5.3%.

Markets will continue to assess Middle East tensions, oil supply risks, and the inflation outlook. Attention will also turn to US labour-market and manufacturing indicators for fresh signals on economic momentum, ahead of next week's central bank decisions and PCE inflation data. Further corporate earnings will remain in focus for their implications for AI-related equities.

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DXY

Key Takeaways

·         The dollar's decline paused ahead of next week's central bank meetings, as investors assessed the outlook for interest rates.

·         Recent gains in sterling and several commodity-linked currencies suggest some investors have reduced bullish dollar positions.

Technical Outlook

·         Daily Bias: Bearish

·         Support: 101.50

·         Resistance: 102.00

XAU/USD

Key Takeaways

·         Falling US Treasury yields supported gold by reducing the opportunity cost of holding a non-yielding asset.

·         Expectations of further Fed tightening remain a headwind, with persistent inflation keeping the prospect of a December rate hike in focus.

Technical Outlook

·         Daily Bias: Bearish

·         Support: 4,104

·         Resistance: 4,142

Brent Oil

Key Takeaways

·         Escalating attacks in Saudi Arabia and the US decision to withdraw some diplomatic personnel heightened concerns over regional supply security.

·         A larger-than-expected draw in US crude inventories reinforced supply concerns, although rising distillate stockpiles offered a counterpoint.

Technical Outlook

·         Daily Bias: Bullish

·         Support: 103.40

·         Resistance: 109.00

Dow Jones

Key Takeaways

·         Stronger results from SpaceX and upbeat guidance from Super Micro Computer supported AI-related sentiment, contributing to gains across major US equity indices.

·         Weakness in communication services, including declines in AT&T, T-Mobile, and Verizon amid concerns about SpaceX's potential telecom competition, limited broader market gains.

Technical Outlook

·         Daily Bias: Bullish

·         Support: 52,386

·         Resistance: 52,935

Calendar Watch

·         Initial Jobless Claims: Markets monitor weekly jobless claims for early signals of changes in labour-market conditions. A rise in claims may indicate weakening employment demand, while a decline may suggest continued labour-market resilience, influencing expectations for Federal Reserve policy.

·         CB Leading Index MoM: This indicator tracks monthly changes in the Conference Board's Leading Economic Index, which is designed to signal the potential direction of economic activity. Markets watch it for clues about the US growth outlook and the risk of an economic slowdown.

·         Kansas Fed Manufacturing Index: This regional survey measures manufacturing activity in the Tenth Federal Reserve District. Investors monitor the reading for insights into factory-sector momentum, business conditions, and potential weakness or resilience in US manufacturing.

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