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Saudi explosion no help to stocks

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by Peter Switzer

Just when a positive finish on Wall Street looked likely, along came a Saudi oil pipeline explosion! And stock prices headed south as the price of oil went north of US$110 a barrel.

Now, the news story was unconfirmed but it did spook the stock market. Financials and other cyclical stocks were looking good while defensives were on the outer.

As the oil price heads up, the thinking of investors is that the global economy, and even the stronger-than-expected US recovery, would be jeopardised. Clearly, world economies and financial markets need all of the help they can get right now and so oil heading higher is a blow.

This also comes at a time when Iran is fighting with the West and threatening oil supplies and to counter this, Saudi Arabia has been increasing supplies to keep a lid on the oil price. This is why the explosion in Saudi Arabia has a hell of a lot of significance.

The previously positive position on stocks was encouraging as the Yanks got some weaker-than-expected economic news.

The Institute for Supply Management report on manufacturing came in at 52.4 last month, when the economic experts tipped 54.5.

Also construction spending fell a small 0.1 per cent but this is the first stumble for the sector in half a year.

Against this, jobless claims continued to fall, dropping to near a four-year low, which is a solid sign of progress for the world’s biggest economy.

There was also good news for personal income growth — up 0.3 per cent — and consumer spending has held steady at good levels.

Also retail numbers beat expectations last month and so the idea of higher oil prices pumping up gasoline prices and hurting consumers’ disposable incomes is ill-timed.

By the way, European markets were positive following the ECB’s exercise to lend 530 billion euro to EU banks.

As you can see, good news still beat bad news and the fact that stocks ended up positive was a great result.

The Dow was up 28.23 points, or 0.22 per cent, to 12,980.3 while the S&P 500 put on 0.61 per cent to 1374.06.

Despite these nice results, this oil story has the potential to hit our market today.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Friday, March 02, 2012

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