(Bloomberg) — U.S. stock futures were down and the dollar rose along with Treasury yields as a surprise OPEC+ output cut pushed oil prices up about 5%.
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The group’s decision to cut production by more than a million barrels a day came as a shock to global markets on Monday. It resonated across asset classes as investors rushed to brace for the risk that inflationary pressures could be more persistent than previously thought.
The dollar extended gains for a second day, gaining against the Group of Ten currencies. The Norwegian krone was little changed after an earlier rally on the expected benefit of higher energy prices for the Scandinavian country.
The yen weakened amid concerns over Japan’s oil import dependency and as confidence among the country’s major manufacturers deteriorated, adding to the case for the central bank to maintain ultra-loose monetary conditions for a while longer.
The policy-relevant two-year government bond yield rose about eight basis points, dragging it back to 4.1% as traders weighed the announcement from OPEC+, which earlier assured it would keep supply steady. Treasuries ended the first quarter on Friday with yields falling as investors bet that rate cuts are on the horizon.
Futures for the S&P 500 fell 0.3% and those for the Nasdaq 100 0.6% as Friday’s upbeat sentiment faded. The S&P 500 was up 3.5% last week, its strongest since November, while the tech-heavy Nasdaq 100 posted its biggest quarterly gain since June 2020.
“This could be a rude awakening for equity investors as markets imply a Goldilocks view of reduced discount rates but no recession,” said Ronald Temple, chief market strategist at Lazard Ltd. in NYC. “The OPEC+ production cut is another reminder that the inflationary genie is not back in the bottle.”
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Goldman Sachs Group Inc. revised its Brent crude price forecast due to the production cut and forecast it to reach $95 a barrel by year-end and $100 in December 2024, analysts including Daan Struyven and Callum Bruce wrote in a note.
Stocks in Japan and Australia edged higher, while Asian energy stocks rose. However, semiconductor stocks fell after Beijing issued a security review of Micron Technology Inc.’s imports.
Stocks in Hong Kong fell while those in Shanghai posted gains. Caixin manufacturing PMI data on Monday showed a stronger-than-expected decline, suggesting some weakness in China’s economic recovery.
Monday’s bumpy start to trading and fears of rising prices contrast with the optimistic tone last week, which emerged as turmoil in the banking sector eased and a key measure of US inflation slowed.
Excluding food and energy, the Federal Reserve’s preferred measure of inflation – the index of personal consumption expenditure – rose 0.3% in February, slightly below the median estimate. This indicated that the Fed could be close to ending its rate hike campaign. The PCE price index rose 5% year-on-year, slowing from January but well above the Fed’s 2% target.
The OPEC+ cut coupled with increased energy demand from China will increase the risk of prolonged inflation, Lazard’s Temple said. “It also likely limits the room central banks could have to ease monetary policy even if the economy is slowing,” he added.
“We are now probably about to re-enter a very short-term downturn,” Paul Gambles, co-founder and managing partner of MBMG Group, told Bloomberg Television. “We’ve had a year of fairly irresponsible policy leaders and all the damage they have done is now beginning to show.”
Elsewhere, gold and bitcoin declined. The cryptocurrency posted its best quarter since March 2021, gaining about 70% in the first three months of this year.
Important events this week:
Eurozone S&P Global Eurozone Manufacturing PMI, Monday
US Construction Spending, ISM Manufacturing, Light Vehicle Sales, Monday
Eurozone PPI, Tuesday
US factory orders, US durable goods, Tuesday
Interest rate decision in Australia, Tuesday
Cleveland Fed President Loretta Mester speaks Tuesday
Eurozone S&P Global Eurozone Services PMI, Wednesday
US trade, Wednesday
UBS Annual General Meeting, Wednesday
US initial jobless claims, Thursday
St. Louis Fed President James Bullard speaks Thursday
US Unemployment, Nonfarm Payrolls, Friday
good friday Many markets closed, including US stock and bond markets
Some of the key movements in the markets:
Shares
S&P 500 futures were down 0.3% as of 1:20 p.m. Tokyo time. The S&P 500 rose 1.4% on Friday
Nasdaq 100 futures fell 0.6%. The Nasdaq 100 rose 1.7% on Friday
Japan Topix Index up 0.6%
Hong Kong’s Hang Seng index fell 0.6%
China’s Shanghai Composite Index up 0.6%
Australia’s S&P/ASX 200 index rose 0.7%
currencies
The Bloomberg Dollar Spot Index rose 0.4%
The euro fell 0.4% to $1.0794
The Japanese yen fell 0.5% to 133.46 per dollar
The offshore yuan fell 0.4% to 6.8953 per dollar
The Australian dollar fell 0.3% to $0.6665
cryptocurrencies
Bitcoin fell 1.4% to $27,680.75
Ether fell 0.8% to $1,775.77
Bind
The 10-year government bond yield rose five basis points to 3.52%
Japan’s 10-year yield rose four basis points to 0.36%
Australia’s 10-year yield was little changed at 3.30%
raw materials
West Texas Intermediate crude rose 5.4% to $79.75 a barrel
Spot gold fell 0.9% to $1,951.70 an ounce
This story was created with the support of Bloomberg Automation.
–Assisted by Matthew Burgess.
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