Brent crude futures crashed above two-month high of $123 a barrel and could rise further, analysts said in Europe on easing of Chinese lockdowns at a time of Russian oil imports, higher US heat demand and tight global crude supplies. Referring to the decision of
see photosMarkets look past signs that China’s economic pain may ease amid easing of COVID-19 restrictions
European stocks fell on Tuesday and Wall Street was tipped to start off weak as rising oil prices raised fears of a further uptick in global inflation that would prompt the US Federal Reserve and other central banks to raise interest rates. Markets looked to past signs that China’s economic pain may ease amid the easing of COVID-19 restrictions and instead focused on the inflation outlook. Euro zone inflation hit a record high of 8.1% in May, a day after German price hikes reached 8.7%. Inflation was at this highest level during the 1973/74 oil shocks.
Brent crude futures crashed above two-month high of $123 a barrel and could rise further, analysts said in Europe on easing of Chinese lockdowns at a time of Russian oil imports, higher US heat demand and tight global crude supplies. Referring to the decision of
“It all depends on inflation now,” said François Savery, CIO of Prime Partners, a wealth manager in Geneva.
He said the stock markets were not out of the woods despite rebound from the trough in the middle of the month. The rebound was driven by a belief that inflation may be peaking and a pullback in expectations of a Fed rate hike.
“What happens to the markets depends on whether we see some normalization in inflation in the second half of the year,” Savari said.
German inflation data strengthened the case for an external European Central Bank rate hike in July and sent German yields to the highest level in more than a decade.
Highly indebted Italy saw 10-year yields rise by more than 7 basis points.
In stock markets, a pan-European equity index slipped 0.3%, while German shares fell 0.6%.
While still down 40 bps from their high in early May, yields have recently moved away from a six-week low
Futures for the US S&P 500 slipped 0.45%, although the Nasdaq E-Minis offset some of the earlier losses to stand flat.
MSCI’s global stock index is set to end May with a small loss, its first monthly decline this year
As in Europe, Treasury yields were rising after Monday’s US public holiday. Ten-year yields jumped 10 basis points and eased doing business by 6 bps to 2.81%.
While still down 40 bps from their high in early May, yields have recently moved away from a six-week low.
Some of that momentum stemmed from comments by Fed Governor Christopher Waller, who on Monday advocated a 50 basis-point rate hike until there was a “substantial” reduction in inflation.
His comments dashed hopes of a halt to rate hikes in September.
China eases restrictions
Earlier the mood in Asia was more cheery, when China unveiled policy support details, including cash handouts for hiring graduates and support for offshore listings of Internet companies.
China’s official PMI also saw a decline in factory activity in May, but at a slower pace than in April.
That led Chinese blue chip shares to rise 1.6%, while MSCI’s index of Asian shares outside Japan was up 0.7%.
News from China lifted the Australian dollar, although it later declined to trade down 0.2% against the US dollar.
“Whether Shanghai can provide an effective and sustained opening is critical,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong.
Although residents of Shanghai are able to resume driving from Wednesday, oil prices could get another boost, analysts have warned.
Such concerns and the US Treasury yield bounce lifted the dollar index above a one-month low, allowing it to rise 0.5%. The euro slipped 0.7% to $1.0706 against the US currency.
“The dollar advanced today due to higher oil prices … and the risk of a recession is seen in Europe more than in the US,” said Stuart Cole, chief macro strategist at Equity Capital.
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