Sydney, Sep 27 (BNA): Asian stocks got off to a cautious start on Monday as a jump in oil prices to three-year highs could stoke inflation fears and exacerbate the recent hawkish shift by some major central banks.
Oil passed its peak in July as global production disruptions forced energy companies to pull large quantities of crude oil from inventories, while natural gas shortages in Europe pushed up costs across the continent.
Brent added another 62 cents on Monday to $78.71 a barrel, while US crude rose 71 cents to $74.69.
“We expect this rally to continue, with our year-end outlook for Brent at $90 a barrel versus $80 a barrel previously,” analysts at Goldman Sachs wrote in a note to clients.
“The current global oil supply and demand deficit is larger than we expected, with global demand recovering from the delta effect faster than our above consensus forecast.”
Such an increase could spark speculation that global inflation will prove to be longer-lasting than initially hoped and eventually speed up the end of very cheap money, favoring deflationary deals in banking and energy stocks while hurting bond prices.
MSCI’s broadest index of Asia-Pacific shares outside Japan was flat, after three straight weeks of losses.
Japan’s Nikkei rose 0.4% on hopes of more fiscal stimulus once a new prime minister is chosen.
Nasdaq futures are up 0.1%, and the S&P 500 is up 0.3%.
The fate of China Evergrande Group remained unknown after the real estate giant defaulted on an offshore bond last week, with another payment due this week.
Stocks in Hong Kong have come under the most pressure, although the government in Beijing has added more liquidity to the financial system.
“We expect policy makers in China to allow real estate debt deleveraging with ethical risk mitigation in mind, but they are confident that they will manage the restructuring effectively and effectively limit the financial fallout,” JPMorgan analysts said in a note.
All eyes will also be on US fiscal policy with the House set to vote on a trillion-dollar infrastructure bill this week, while a September 30 deadline on federal agency funding could force a second partial government shutdown in three years. Read more
The week is filled with speeches from the US Federal Reserve led by President Jerome Powell on Tuesday and Wednesday, with more than a dozen other events on the calendar.
The recent upbeat turnaround by the US central bank, and several other banks globally saw bond yields swing before ending last week sharply higher.
The 10-year Treasury hit its highest level since early July at 1.46% amid talk that deflation trading may return as the world prepares for the end of ultra-cheap money.
The rise in yields has boosted the US dollar, especially against emerging market currencies that compete with Treasuries for global funds.
Against a basket of currencies, the dollar settled at 93.292 and close to a 10-month high of 93.734.
It even gained some strength on the yen, hitting the key chart barrier at 110.79. Breaking that will take the coin to an area that hasn’t been visited since early July.
The euro settled at $1.1719 as investors pondered the implications for a German government led by the centre-left Social Democrats after a narrow election victory on Sunday.
The Social Democrats claimed a “clear mandate” to lead a government for the first time since 2005, ending 16 years of conservative-led rule under Angela Merkel.
“The prospect of a political shift to the left indicates that Germany’s fiscal position may become less of a burden on the economy over the next few years than is currently expected,” CBA analysts said in a note. “This would ultimately benefit the euro.”
The firmer dollar weighed on gold, which was steady at $1,748 an ounce and above a six-week low of $1,738.
HF