By Benjamin Picton, senior market strategist at Rabobank
US stocks defied a strong lead from Europe and Asia on Friday to close broadly in the red. IT, telecommunications and the consumer discretionary sector led declines while energy, materials and consumer staples performed well. Oil prices surged following further reports of attacks on shipping in the Strait of Hormuz, with Iran claiming that two tankers carrying up to 4 million barrels of crude were struck by marine mines. The BBC reports UKMTO figures noting that the number of ships being attacked in and around the Strait hit a new high of 12 vessels in the week to the 11th of October.
Rising oil prices helped to see ten-year Treasury yields close 1.5bps higher at 5.07% after a big drop on Thursday. Two-year yields fell by 3bps, causing a steepening of the yield curve that might have provided a slight tailwind to financial stocks. Higher oil prices and rising long yields were not helpful for the consumer discretionary sector that was perhaps still trading off the signal of a weaker-than-expected retail sales report released the day before, which gave the impression that spending on automotive fuels is cannibalising demand for other goods.
Following market close on Friday news emerged that President Trump is enacting a waiver of steep Graham Act sanctions and tariffs that were due to come into effect. The Act requires the imposition of secondary sanctions in the form of 100% tariffs against the top five buyers of Russian crude oil and gas products while also placing 500% tariffs on Russian energy products being imported into the United States. Active Brent crude futures are down by $1.80/bbl at time of writing.
Depending on how the calculation is performed, the top five buyers of Russian energy products are likely to include China, India, Turkey and the European
