Shares were mixed in Asia on Tuesday, led by declines in Chinese benchmarks after the credit ratings agency Moody’s downgraded Hong Kong, citing the city’s recent political turmoil.
The U.S. and international benchmarks for crude fell back slightly after vaulting more than 14% overnight after an attack on Saudi Arabia’s largest oil processing plant.
Japan’s Nikkei 225 index recovered from early losses to edge 0.1% higher at 22,001.32 and South Korea’s Kospi was flat at 2,062.33. The S&P ASX/200 in Sydney added 0.3% to 6,695.30.
But the Shanghai Composite index skidded 1.7% to 2,978.71 and Hong Kong’s Hang Seng slipped 1.0% after Moody’s shifted its outlook to “negative.” Fitch Rating did so earlier.
Hong Kong’s chief executive, Carrie Lam, said the downgrade was “disappointing.”
Moody’s said in a statement that the protests and their handling showed weaknesses in Hong Kong’s institutions. The turmoil was “damaging its attractiveness as a trade and financial hub,” it said.
Elsewhere in Asia, India’s Sensex fell 0.8%. Shares also lost ground in Taiwan and Singapore but rose in Indonesia and Thailand.
On Wall Street, the Dow Jones Industrial Average fell 0.5% to 27,076.82, breaking a streak of eight consecutive gains. The S&P 500 lost 0.3%, to 2,997.96, its biggest decline in two weeks. American Airlines was the biggest decliner in the index.
The Nasdaq lost 0.3% to 8,153.54, while the Russell 2000 picked up 0.4%, to 1,584.60.
Shares of oil producers jumped, while prices for Treasurys, gold and other investments seen as less risky rose.
The weekend attack on the Saudi Aramco plant halted production of 5.7 million barrels of crude a day, more than half of Saudi Arabia’s global daily exports and more than 5% of the world’s daily crude oil production.
The attack raised worries about the risk of more disruptions in the supply of oil at a time when the global economic outlook is clouded by uncertainty.
Still, analysts expressed doubts that the disruption in Saudi Arabia’s oil production would have much of an impact on the U.S. economy, at least in the short term.
The bigger concern is over whether there might be more attacks.
The double-digit spike in crude prices on Monday was comparable to a 14.5% jump on Aug. 6, 1990, following Iraq’s invasion of Kuwait.
Benchmark U.S. crude oil shed 52 cents to $62.38 per barrel in electronic trading on the New York Mercantile Exchange. On Monday, it soared $8.05 to settle at $62.90 a barrel. Brent crude oil, the international standard, declined 23 cents to $68.79 per barrel. It jumped $8.80 to close at $69.02 a barrel in London.
The spike in oil prices has helped oil producers but weighed on shares in airlines, whose operations can be hurt by any rise in the price of fuel.
China Eastern Airlines’ shares dropped 2.9%, ANA Holdings lost 1.5% and Cathay Pacific Airways shed 3.1%.
Concern over higher oil prices in a region heavily dependent on imports from the Middle East is understandable, Mizuho Bank said in a commentary.
“Higher oil imports will weigh on trade balances. For countries that are running trade deficits, such as Indonesia and Philippines, this will widen their deficit and subsequently exert downward pressure on the currency. A weakened currency will then push up oil import bill further,” it said.
However, it added that there is still no cause for excess concern.
The oil price gyrations have somewhat overshadowed this week’s headline event, the Federal Reserve’s meeting on interest rates. Investors are confident the central bank will cut short-term rates by a quarter of a percentage point to a range of 1.75% to 2%. It would be the second such cut in two months, as the Fed tries to protect the economy from a global slowdown and the effects of the U.S.-China trade war.
In currency trading, the dollar rose to 108.22 Japanese yen from 108.15 yen on Monday. The euro weakened to $1.0995 from $1.1001.