Saudi pipeline hit keeps nerves taut ahead of the Fed

Happy Sunday. The weekend's oil shock came from a Saudi pipeline. The east-west line that carries crude to Yanbu on the Red Sea, bypassing the Strait of Hormuz, was attacked several times and shut as a precaution. President Trump said Iran is probably responsible. News that Yemen's Houthi rebels had seized a Red Sea port only added to supply worries.

It matters because that pipeline is the main workaround if Hormuz is blocked. If the workaround wobbles, oil becomes more jumpy, and higher oil revives worries about prices and rates. Friday's first-ever $6 diesel price fits the same pattern. Oil fell nearly 4% on Friday on word that Gulf states are preparing to talk to Iran, but Brent still closed the week above $104.

Looking back at the week, stocks ended lower despite Friday's rebound. A hot core CPI lifted the odds of a hike next week to between 85% and 89%, and the 10-year yield rose about 0.2 points in a week to near 5%. Markets have also begun to price in more than one hike. On top of that, Michigan consumer sentiment slid to 47.8, and inflation is again outrunning wage growth.

Next week centers on Wednesday's Fed decision. With a hike widely seen as a done deal, the focus will be on how Chair Warsh describes what comes next. The Bank of Japan decision is also flagged as a wildcard because of yen carry-trade unwinding worries.