Oil is driving a mad rush for resources, stagflation is a risk

  • >Asian stock exchanges:
  • Oil surge shows no signs of stopping as Brent hits $117
  • Nikkei adds 0.8%, S&P futures flat
  • Euro at 22-month low, Russian debt downgraded
  • Fed’s Powell favors 25 basis point hike in March

SYDNEY, March 3 (Reuters) – Oil prices rose on Thursday as war in Ukraine sparked a mad dash for resources in a worrying sign for global inflation, while Asian stocks posted gains after reassuring comments from the Federal Reserve helped Wall Street rebound. .

Brent crude surged above $117 a barrel and is now up almost 20% on the week, while everything from coal to natural gas and aluminum is on fire as Western countries tighten sanctions against Russia. Read more

“Russia supplies around 30% of Europe’s gas and oil imports and accounts for around 11% of global oil production,” said Shane Oliver, head of investment strategy at fund manager AMP. “In short, investors are worried about a stagflationary shock.”

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The rush for commodities sent resource-rich Australian stocks (.AXJO) up 0.9%, while Indonesia (.JKSE) was just off a record high.

The Japanese Nikkei (.N225) managed a 0.8% gain, while MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) rose 0.6%.

MSCI added to Russia’s financial isolation by deciding to exile the country from its emerging markets index, while FTSE Russell said Russia would be removed from all of its indexes.

Fitch cut Russia’s sovereign credit rating six notches to junk status, saying it was uncertain whether the country could service its debt, and Moody’s quickly followed suit. Read more

After rebounding overnight, S&P 500 stock futures were flat, while Nasdaq futures were down 0.1%.

EUROSTOXX 50 futures fell 0.2% and analysts at JPMorgan issued a stern warning to clients.

“We believe investors should underweight the Eurozone in both currency and equity terms, given its vulnerability to any further escalation,” they wrote in a note.

“We have revised our commodity price forecast by 10-20% upwards across the board given the ongoing geopolitical crisis,” they added. “A good thing is that the crisis has forced a dovish reassessment of the Fed by the market, and we continue to assume a ‘moderate’ hiking path.”

THE EURO UNDER PRESSURE

Fed Chairman Jerome Powell said on Wednesday that rates would likely only be raised 25 basis points this month, and the war in Ukraine has made the outlook “very uncertain.” Read more

Futures reacted by pricing in any chance of a half point rise later in March.

However, Powell warned that the Fed may need to hike more aggressively if inflation continues to rise. That removed some of the safe-haven steam from Treasuries and 10-year yields were back at 1.85%, from Tuesday’s two-month low of 1.682%.

European bonds also gave up some of their recent strong gains after data showed euro zone inflation hit a record high of 5.8% in January, making it harder for the ECB to hold a very flexible policy.

Inflation was also on the Bank of Canada’s mind when it launched a tightening cycle on Wednesday with a quarter-point rate hike to 0.5%. Read more

The move, combined with strong oil prices, pushed the Canadian dollar to a five-week high of $1.2625. Other commodity currencies also benefited as the Australian dollar hit a four-year high against the euro .

The euro was also on the defensive at $1.1098, having sunk to a 22-month low overnight at $1.1056.

The dollar rose to 115.68 yen as Japan’s trade position is expected to deteriorate given that it is a major importer of energy and resources.

Dealers stayed away from the Russian ruble, even though it once traded at 101.00 to the dollar.

The US dollar index stood at 97.502, after hitting its highest since June 2020 at 97.834.

Gold was holding at $1,927 an ounce and was still up 2% on the week so far on safe haven demand.

Oil rose above $110 a barrel as it said the market will remain short of supply for months to come following sanctions on Moscow and a flood of divestments from Russian oil assets by big business.

Brent bet another $4.34 to hit $117.27 a barrel, while U.S. crude rose $3.32 to $113.92.

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Reporting by Wayne Cole; Editing by Lincoln Feast and Kim Coghill

Our standards: The Thomson Reuters Trust Principles.


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