Fed cut propels stocks and oil soars again on Mideast tension

London, Sept 19 (AFP/APP):World stock markets mostly rose Thursday after the Federal Reserve cut interest rates but left the outlook unclear, while oil rebounded on fresh supply concerns in the Middle East.

In late morning deals, London stocks advanced before a Bank of England decision at 1100 GMT, which will likely see its key interest rate left at 0.75 percent.

Awaiting the BoE update, investors shrugged off official data showing that UK retail sales dipped 0.2 percent in August from July.

In the eurozone, the Frankfurt and Paris stock markets gained on the Fed news and after increases across much of Asia.

“European equity markets are higher… even though the Federal Reserve was not overly dovish,” said IG analyst David Madden.

“The US central bank cut interest rates by 0.25 percent, meeting expectations, but the message from the update suggested that further rate cuts are not definitely in the pipeline.”

While the Fed met expectations with a 25-basis-point reduction, the lack of strong forward guidance disappointed many.

More on US Federal Reserve: US Fed cuts key interest rate a quarter point, citing ‘uncertainties’


However, lower interest rates tend to support stock markets because they cut the cost of credit for businesses and loan repayments for consumers.

“Easier policy in absolute terms is good for stocks as it means lower rates, lower cost of capital, high bond prices and so pushes investors up the risk curve,” noted Neil Wilson at Markets.com.

– Oil spikes again –

In commodities, Brent oil rebounded two percent as traders seized on resurfacing tensions in the crude-rich Middle East.

The market had surged at the start of the week after drone attacks at Saudi oil facilities on Saturday.
Traders remain on red alert for further developments, including the US and Saudi response, with both putting the blame at Iran’s door.

“There’s been a fairly sharp move higher in oil after a couple of incidents occurred in a short space of time that threaten to raise supply fears in the Middle East,” XTB analyst David Cheetham told AFP.

“First off, reports that Saudi Arabia will look to import oil to offset its own reduced production suggests that the impact of last weekend’s attacks is greater than the kingdom is letting on, with hopes of a swift return to the prior level of output looking hopeful to say the least.

“Not long after this, the Iranian foreign minister tweeted an inflammatory statement aimed at Saudi Arabia and together these have seen a flurry of buying in the oil price,” Cheetham added.

The crisis has reignited worries about a military flare-up in the oil-rich Gulf region, which would send prices soaring and likely hit stock markets.

CMC Markets analyst David Madden added that Riyadh did not want to lose precious market share.
“Saudi Arabia does not want its business going elsewhere, so it plans to import energy, and presumably resell it as a way of maintaining its business links,” Madden said.

“No doubt other energy producers see Saudi Arabia’s difficulty as their opportunity.”

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