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Europe open: Stocks drop after Saudi attacks; China data weighs

Mon 16 September 2019 08:42 | A A A

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(Sharecast News) - European stocks fell in early trade on Monday following drone attacks on Saudi Arabian oil processing facilities over the weekend and as investors mulled weak China data.

At 0850 BST, the benchmark Stoxx 600 index was down 0.6% at 389.47, Germany's Dax was 0.6% lower at 12,396.56 and Franc's CAC 40 was off 0.7% at 5,616.66.

Meanwhile, oil prices surged, with West Texas Intermediate up 7% at $59.00 a barrel and Brent crude 7.6% higher at $65.16 after drone attacks on two oil processing facilities operated by state-owned Saudi Aramco on Saturday. The attacks are said to have disrupted more than 5% of global daily oil production.

Oanda analyst Craig Erlam said: "Houthi rebels in Yemen have claimed responsibility for the attack although fingers are being pointed elsewhere as tensions between the US and Iran hit new levels.

"The attack was as severe as it was unexpected but that's not the worst thing about it. Saudi Arabia believes a significant proportion of the outages can be back online in a few days while Trump also approved release of supplies from the Strategic Petroleum Reserve to ensure the market remains well surprised.

"None of this should make us feel relaxed about the potential for further attacks though and the longer-term implications on the oil market. Spikes in oil prices when the global economy is already flirting with the idea of recession is not ideal and, if repeated and sustained, could ultimately be what tips us over the edge."

The surge in oil prices helped to propel the Stoxx 600 oil & gas index 2.6% higher to 319.31. It was a different story for airlines, however, with the likes of easyJet, Ryanair, Deutsche Lufthansa and Air France-KLM all firmly in the red.

Market participants were also digesting some disappointing data out of China, which showed that industrial production fell to a 17-year low in August, while retail sales and fixed asset investment also weakened.

Industrial production growth slowed to 4.4% year-on-year in August from 4.8% in July, falling short of expectations for a 5.2% increase.

Retail sales growth slowed to 7.5% in August from 7.6% the month before, missing expectations of 7.9% growth, while fixed-asset investment expanded at 5.5%, down from 5.7% in July and below expectations of 5.6% growth.

Pantheon Macroeconomics said: "Overall, these three reports will be a blow to the authorities. Admittedly the data are volatile, but officials are clinging on to the notion that previous stimulus efforts will feed through. That's fair enough, but these figures raise the case for doing more in the meantime.

"We continue to think that the People's Bank of China will cut the rate corridor by 20bp this month, while local governments will be given more rein to borrow."

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