Kabul explosions send global shares and oil lower

Crude oil fell to under $71.50 a barrel.

Global shares and the price of oil fell as markets turned cautious after explosions in Afghanistan and ahead of a US Federal Reserve gathering that may provide more clues about the central bank's approach to paring stimulus following the Covid crisis.

In the US, the S&P 500 and Nasdaq 100 slid after reports of casualties from blasts outside Kabul airport, escalating tensions as the US evacuates the area. 

The Stoxx Europe 600 Index fell, dragged lower by basic resources and travel shares, while MSCI Inc’s Asia-Pacific gauge snapped a three-day rally, and crude oil fell to under $71.50 a barrel.

"Risks are tilted to the downside over the near term," analysts at BCA Research said. "While global Covid-19 cases appear to be rolling over and [China's] Ningbo-Zhoushan port has reopened, which are both positive for supply chains, Covid-19 cases are still climbing in Germany," it said. 

A survey showed the mood among German consumers darkened heading into September as accelerating inflation and rising Covid-19 cases made them more hesitant to buy.

Business morale in the eurozone's largest economy fell for the second month running in August. 

European travel giant Tui, airlines Ryanair, Wizz Air, Lufthansa, and Aer Lingus and British Airways-owner IAG, fell by about 1% and 3.8%. 

The decline came after non-voting members of the Federal Open Market Committee also made hawkish monetary comments, urging the Fed to start tapering its asset purchase programme.  

Uncertainty created by the explosions

Michael O’Rourke, chief market strategist at Jonestrading, said the quick drop in shares was likely a culmination of the morning news, including the uncertainty created by the explosions and the Fed commentary ahead of chairman Jerome Powell’s speech at the Jackson Hole symposium.

Views are split on whether the address later on Friday will provide a clearer guide on tapering emergency Fed support. 

While the ongoing economic rebound and elevated inflation add to the case for starting policy normalisation, the fast-spreading Delta virus variant threatens a slower pace of recovery than some had expected.

If Mr Powell fails to hint at when a taper announcement will occur, all eyes will next be on the August jobs report, said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. 

The latest US jobless claims and annualised GDP data slightly missed estimates.

“A strong jobs report on September 3 will lead to increased speculation that the Fed will announce their taper plans at the September FOMC meeting,” he said. 

Renewed concerns about demand

Oil fell 1% as renewed concerns about demand due to rising Covid-19 infections cut short a three-day rally, and as Mexico restored some oil production after a fire disrupted supplies.

Brent crude was down 78 cents, or 1.1%, at $71.47 a barrel, even before the news of the Kabul explosions.

Yet, fresh Covid-19 outbreaks fuelled by the Delta variant of the coronavirus are raising concerns about the strength of the economic recovery globally. 

And restored output in Mexico also weighed on prices, which had been buoyed after a fire on Sunday on an offshore platform knocked out more than 400,000 barrels per day of production. 

• Bloomberg, Reuters, Irish Examiner