LONDON (Reuters) – Oil prices were heading towards three-year highs on Tuesday, towing petrocurrencies and inflation expectations with them, after the world’s main oil producers failed to agree on production plans.
Wall Street was facing a groggy restart after its July 4 holiday, Europe’s equity markets were spluttering at the prospect of higher inflation and China spooked its tech sector again with another high-profile clampdown [.SS].
The main action was around the black stuff, though, after the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, abandoned talks after the United Arab Emirates rejected a proposed eight-month extension to output curbs. [O/R]
Some OPEC+ sources said there would be no oil output increase in August, while others said a new meeting would take place in the coming days and they believed there would be a boost in August.
Crude traders were not hanging around to find out. They pushed Brent up as far as $77.66 – the highest level since October 2018 – and U.S. crude to its highest since late 2014 at $76.90 a barrel. Oil is up roughly 50% this year and over 385% since last year’s COVID-driven slump.
“Without an injection of some extra barrels of oil in the coming weeks, given the tightness of the market, Brent might cross the USD 80/bbl threshold,” UniCredit’s analysts said.
The main petrocurrencies loved it.
Norway’s crown, the Canadian dollar and Russia’s rouble all rose. The Australian and New Zealand dollars climbed too as the Aussie central bank pared back stimulus, although like many of its peers it did its best to dampen interest rate rise talk.
Back in Europe’s stock markets, the oil sector had made the early running, rising as much as 0.5% as the region’s STOXX 600 sagged 0.2%. [.EU]
“Slowing growth, rising inflation and less expansive monetary policy could act as a dampener on equity markets and riskier corporate bonds,” Pictet Asset Management’s chief strategist Luca Paolini said.
Graphic: Oil prices and global inflation –
Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan inched up 0.1% late on, having spent the session in and out of the red.
Japan’s Nikkei finished up 0.2% but Australia’s S&P ASX200 reversed following the RBA’s decision to keep interest rates on hold.
Hong Kong marked its sixth day of losses and China’s CSI300 dipped to an almost two-month-low [.SS], after the Cyberspace Administration of China ordered an investigation into ride-hailing giant Didi, days after it listed on the New York Stock Exchange.
China will step up supervision of Chinese firms listed offshore, and improve regulation of cross-border data flow and data security, Xinhua news agency quoted the cabinet as saying.
In pre-U.S. market trading Didi’s shares, which had been valued at up to $75 billion as of Friday, were down 25%.
“There is still lingering uncertainty from China’s tech companies and they are prominent in the Asian market, so that could be a cloud for market sentiment,” said Tai Hui, JPMorgan Asset Management’s chief Asia market strategist.
“The tech sector is very significant in Asia and we are not going to have a lot of clarity on the regulatory adjustments in China for the next few weeks or even months and (that) will be an important driver for the market.”
Investor appetite for Chinese tech companies could be tested by Xiaomi mandating 12 banks on Tuesday to lead a potential U.S. dollar debt issuance.
Globally, the publication of the U.S. Federal Reserve’s Federal Open Markets Committee minutes for June on Wednesday is highly anticipated by investors for guidance on whether emergency stimulus measures could start to be tapered.
Back in Europe, data showed euro zone monthly retail sales rose more than expected in May although investor sentiment in Germany saw a modest drop.
The rise in oil, however, meant a key market gauge of long-term euro zone inflation expectations rose above 1.62% for first time in seven weeks.
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