World markets turned tail again yesterday, as a bounceback in oil prices and rising tensions between Western powers and Saudi Arabia added to a cocktail of concerns that battered global stocks last week.
Japan’s Nikkei and China’s main bourses tumbled overnight as trade concerns persisted, and Europe’s STOXX 600 index hit a 22-month low as US markets re-opened a fraction lower after their worst week since March.
The lack of confidence continued to boost traditional safe haven assets. The yen and Swiss franc both made ground on a subdued dollar in the currency markets while gold hit its highest since the end of July.
Germany’s government bonds also rallied yesterday and the euro climbed as high as $1.16 despite a humbling regional election result for Chancellor Angela Merkel’s conservative Bavarian allies on Sunday.
The unexplained disappearance from the Saudi embassy in Istanbul of prominent Saudi journalist and dissident Jamal Khashoggi remained in the headlines as Saudi King Salman ordered an internal probe into the case.
Traders read that as meaning driving oil prices up further.
Brent crude responded by jumping 1 per cent which in turn saw Saudi stocks recover the full 3.5 per cent they had lost on Sunday when the diplomatic tensions flared.
Turkey’s lira was another big riser yesterday, jumping 1.5 per cent to its highest since mid-August after US President Donald Trump cheered the release of a US pastor who had been under house arrest in Turkey.
Investors hope his release can lead to an improvement in strained US-Turkey relations.
But the broader global picture was still cautious.
Wall Street’s S&P 500, Dow Jones and Nasdaq started in the red, albeit only just, after lacklustre US retail sales data.
Saudi Arabia’s riyal currency was still testing the boundaries of its peg at 3.7514 to the dollar – its weakest spot rate since June 2017.
The Saudi central bank maintains a peg of 3.75 riyals to the dollar, and usually the currency fluctuates in a range of about 3.7498-3.7503.
Japan’s Nikkei slumped 1.8 per cent yesterday, with carmaker shares hitting 13-month lows after Washington said it would seek a provision about currency manipulation in future trade deals with Japan.
MSCI’s broadest gauge of the world’s 47 top stock markets was off 0.2 percent after a sizeable 3.87 per cent decline last week - its biggest since March – to a one-year nadir.
In London, sterling recovered from renewed Brexit deal worries, while commodities trading remained hung up on the Saudi tensions and the risk they could drive up prices.
Yesterday, Brent crude futures were last up 1 per cent to $81.26 per barrel, bouncing back from Friday’s near-three-week low of $79.23.