Weekend drone strikes on the heart of the Saudi oil industry forced the kingdom to shut down half its crude production, amounting to a loss of 5.7M barrels a day, or roughly 5% of the world's daily production of crude oil. Yemen's Iranian-aligned Houthi rebels claimed credit for the attack, saying they sent 10 drones to strike at important Aramco (ARMCO) facilities, including the world's largest oil processing plant and a major oil field. The disruption sent WTI futures as much as 15.5% higher overnight to $63.34, the biggest intraday percentage gain since June 22, 1998, while President Trump authorized a release of crude from the Strategic Petroleum Reserve, as necessary.

Sell-side weighs in

"No matter whether it takes Saudi Arabia 5 days or a lot longer to get oil back into production, there is but one rational takeaway from this weekend's drone attacks on the Kingdom's infrastructure - that infrastructure is highly vulnerable to attack," according to analysts at Citi. "The market needs to price in a new level of supply chain vulnerability, with the speed Saudi can come back important not just for this instance but for future disruptions as well," added JPMorgan. For the global oil market, the 5.7M bpd Saudi halt is the single worst sudden disruption ever, surpassing the loss following the Invasion of Kuwait and Iranian Revolution.

Futures retreat

The Saudi oil interruption is weighing on equities just as they were getting back into rally mode, with Dow and S&P futures down 0.4% and Nasdaq futures off by 0.6%. It would be the first decline in nine days for the DJIA, which had climbed back to within 1% from a record on Friday. Weak industrial output data from China (see below) further hammered market sentiment, as well as geopolitical worries. Some U.S. officials blamed Iran for the strikes on Aramco's (ARMCO) facilities, with President Trump saying he was "locked and loaded" for a response "depending on verification."

China's slowdown deepens

Industrial output growth weakened to 4.4% in August, the weakest in 17.5 years, amid spreading pain from the trade war with the U.S. and softening domestic demand. Retail sales and investment gauges worsened as well, reinforcing views that China is likely to cut some key interest rates this week. Ahead of the data, Premier Li Keqiang said it would be "very difficult" for the economy to grow at 6% or more and that it faced "downward pressure."
 

National strike against GM

The United Auto Workers union has begun a nationwide strike against General Motors (NYSE:GM), with some 46,000 members walking off the job after contract talks hit an impasse. Shutting down North American production will cost GM about $400M/day, according to Kristin Dziczek of the Center for Automotive Research, adding that "GM has enough inventory for a short strike of one or two weeks. After that it starts to get painful." The strike does not include Ford (NYSE:F) and Fiat Chrysler (NYSE:FCAU), whose UAW contracts were extended while the union tries to negotiate a deal with GM.
 

OxyContin maker bites the dust

Purdue Pharma has filed for bankruptcy protection, days after reaching a tentative deal to settle more than 2,600 lawsuits alleging the company helped fuel the deadly U.S. opioid epidemic. The settlement calls for the Sackler family to hand over Purdue to a trust controlled by the states, cities and counties that have sued to recoup billions of dollars they spent battling addictions and overdoses. Opioid maker Insys Therapeutics (OTCPK:INSYQ) filed for Chapter 11 bankruptcy protection on June 10, while reports suggest Mallinckrodt (NYSE:MNK) may be next.
 

No flavored ecigs allowed

New York Governor Andrew Cuomo is taking an emergency executive action to ban the sale of flavored electronic cigarettes in the state, amid a surge of vaping-related illnesses and deaths nationwide. The ban would not include menthol and tobacco flavored products, which Cuomo said can help people wean off of regular cigarettes. New York would become the second state in the country behind Michigan to ban the candy flavored products, which are popular with teenagers.
 

Apple's Irish tax bill

The world's biggest tax case hits the courtroom this week. Apple (NASDAQ:AAPL) is battling the EU's Competition Commissioner Margrethe Vestager, who in 2016 ruled that Apple's tax deals with Ireland allowed the company to pay far less than other businesses and levied a €13B tax bill on the iPhone maker. The first hints of how the Apple case may turn out will come from a pair of rulings scheduled for Sept. 24, but a final ruling could take months and empower a potential new crackdown on internet giants.

Firm Brexit deadline

"Despite the Remainer attempt to crush Brexit, I am working flat out to ensure we leave on Oct. 31," U.K. Prime Minister Boris Johnson wrote in The Daily Telegraph. Multiple reports suggest he will reiterate that he wants to secure a deal by Oct. 18 in his first face-to-face meeting today with EU chief Jean-Claude Juncker, but will reject any delay after Halloween. He's also prepared to go to court to fight against legal challenges from his opponents on the matter.

Today's Markets

In Asia, Japan closed. Hong Kong -0.8%. China flat. India -0.7%.
In Europe, at midday, London -0.2%. Paris -0.7%. Frankfurt -0.6%.
Futures at 6:20, Dow -0.4%. S&P -0.4%. Nasdaq -0.6%. Crude +8.2% to $59.37. Gold +0.8% to $1511.90. Bitcoin flat at $10315.
Ten-year Treasury Yield -6 bps to 1.84%

Today's Economic Calendar

8:30 Empire State Mfg Survey