Global markets retreat as tension between West and Saudi Arabia intensifies

London — World markets turned tail again on Monday, as a bounceback in oil prices and rising tension between Western powers and Saudi Arabia added to a cocktail of concerns that battered global stocks last week.

Asia had seen Japan’s Nikkei and China’s main bourses take fresh tumbles on trade and currency jitters and Europe’s Stoxx 600 dipped to a new 22-month low in early trading as the gloom refused to lift.

The ebbing confidence boosted traditional safe-haven assets. The yen and Swiss franc both made ground in the currency markets, and gold hit its highest since the end of July.

Germany’s government bonds also rallied despite a humbling election for Chancellor Angela Merkel’s conservative Bavarian allies in a regional election on Sunday. The euro traded down slightly at $1.1552.

“I don’t think there is really any appetite to dive back in [to stocks] and the Saudi situation is just another ball for investors to have to juggle,” said CMC Markets’ senior analyst Michael Hewson.

“If the trend we saw last week continues, it is going to be very hard for Europe to rally.… The outlook remains very uncertain,” Hewson said.

US President Donald Trump has threatened “severe punishment” if it turns out that prominent Saudi dissident Jamal Khashoggi, a US resident and Washington Post columnist, was killed while visiting his country’s consulate in Istanbul. Many company executives have cancelled plans to attend a Saudi investor conference later this month.

There were some pockets of resistance. A 1% jump in oil helped Saudi stocks claw back half the 3.5% they had lost on Sunday when diplomatic tensions flared over the disappearance of Khashoggi, a critic of Riyadh’s policies.

Turkey’s lira was another riser on Monday, after Trump cheered the release of a US pastor who had been under house arrest in Turkey. Investors hope his release can lead to an improvement in strained US-Turkey relations.

But the broader global picture is distinctly cautious.

Wall Street futures are flashing red, in contrast to the rebound in US stocks, while Saudi Arabia’s riyal currency has been testing the boundaries of its peg at 3.7514 to the dollar — its weakest spot rate since June 2017.

The Saudi central bank maintains a peg of 3.75 riyals to the dollar, and usually the currency fluctuates in a range of about 3.7498-3.7503.

MSCI’s broadest index of Asia-Pacific shares outside Japan also fell 1% overnight as Shanghai ended down 1.5% and just off a four-year low.

Japan’s Nikkei slumped 1.8% on Monday, with carmaker shares hitting 13-month lows after Washington said it would seek a provision about currency manipulation in future trade deals with Japan.