US stocks slip, Treasuries advance as oil trims gains

Bloomberg

US index futures edged lower with European stocks while Treasuries continued higher as investors weighed the fallout from a drone attack on one of the world’s biggest oil facilities and the record surge in crude prices that followed.
Contracts on the three main US stock indexes dipped after fluctuating earlier. The Europe Stoxx 600 index ticked lower, led by declines in mining companies and automakers. Earlier in Asia, equities in Shanghai and Hong Kong slid after China’s central bank disappointed investors when it refrained from lowering a key interest rate.
Treasuries climbed with a gauge of the dollar. West Texas-grade crude oil gave back only a bit of Monday’s 15 percent surge. The pound weakened as Prime Minister Boris Johnson’s lawyers prepared to defend his Brexit strategy before the UK’s highest court on Tuesday. The euro strengthened against the greenback.
Saudi Aramco now faces weeks or months before the majority of output is restored at the giant Abqaiq processing plant after the attack, adding a fresh headwind for the global economy. The developments in the Middle East are testing sentiment after a bullish start to the month for global equities and other riskier assets. Meanwhile, Iran won’t negotiate with the US on any level, anywhere, the Islamic Republic’s supreme leader said.
“The key thing to think about is do we have an oil shock or a short-term disruption?” said Virginie Maisonneuve, chief investment officer at Eastspring Investments, in an interview with Bloomberg Television. “You’re seeing this wait-and-see attitude, and that’s why the markets are quite nervous.”
The events have also overshadowed investor concerns about the simmering trade war. American and Chinese working-level trade negotiators are set to resume talks in the next week, before a meeting of top officials in October.
Meanwhile, President Donald Trump said the US and Japan have reached an initial trade accord over tariffs.
The People’s Bank of China (PBOC) kept the one-year rate on medium-term loans steady on Tuesday, with most analysts now predicting an MLF rate cut in the final quarter of 2019. Following a weak set of economic data from China Monday, “markets were desperately hoping for a more accommodating PBOC,” said Stephen Innes, Asia Pacific Market Strategist at AxiTrader.
Elsewhere, the Australian dollar dropped as the central bank reiterated it was prepared to cut interest rates further. Gold steadied.
The Federal Reserve is widely expected to lower US interest rates in response to slowing global economic growth and muted inflation. Chairman Jerome Powell will hold a post-decision press conference on Wednesday.
The Bank of Japan monetary policy decision is on Thursday, followed by a briefing from Governor Haruhiko Kuroda. Bank Indonesia and Bank of England also decide policy on Thursday. Australia jobs figures are out on Thursday.
Friday is quadruple witching day for US markets. When the quarterly expiration of futures and options on indexes and stocks occurs on the same day, surging volatility and trading can follow. Futures on the S&P 500 Index decreased 0.1 percent in New York. The S&P 500 Index fell 0.3 percent. The UK’s FTSE 100 Index increased 0.2 percent. The Shanghai Composite Index declined 1.7 percent.
The Bloomberg Dollar Spot Index gained 0.1 percent. The British pound fell 0.2 percent to $1.2408. The Japanese yen weakened 0.1 percent to 108.20 per dollar. The euro increased 0.1 percent to $1.1012.
The yield on 10-year Treasuries declined two basis points to 1.82 percent. Germany’s 10-year yield decreased less than one basis point to -0.48 percent.
West Texas Intermediate crude dipped 1.7 percent to $61.81 a barrel.