Oil soars on OPEC hopes, dol­lar re­news its surge

Kuwait Times - - BUSINESS -

Oil jumped more than 6 per­cent and the dol­lar, US bond yields and stocks all pushed higher yes­ter­day as sig­nals from OPEC sug­gested the group was clos­ing in on a deal to cut pro­duc­tion. Com­bined with fresh con­cern about China’s bank­ing sys­tem, a stress test for Bri­tish banks and a raft of euro zone data, the OPEC meet­ing topped off a wild Novem­ber for fi­nan­cial mar­kets that has been dom­i­nated by Donald Trump’s vic­tory in the US pres­i­den­tial elec­tion. Brent oil was still ris­ing, hav­ing surged back to­wards $49 a bar­rel af­ter OPEC’s sec­re­tary gen­eral said a deal would be reached as he headed into a meet­ing of the group in Vi­enna.

Top oil pro­ducer Saudi Ara­bia said a deal was close de­spite some loose ends. Iran, which is con­sid­ered cru­cial to a break­through be­cause its out­put has been ris­ing af­ter western sanctions were lifted, said it was also “op­ti­mistic”. “I think we are look­ing at a very pos­i­tive meet­ing,” added UAE En­ergy Min­is­ter Suhail bin Mo­hammed Al-Mazroui, who was echoed by coun­ter­parts from An­gola, Al­ge­ria and Nige­ria. A pos­si­ble rise in oil prices has also been feed­ing ex­pec­ta­tions for a re­bound in global in­fla­tion. Those ex­pec­ta­tions have been gath­er­ing mo­men­tum since Trump promised $1 tril­lion of new spend­ing on in­fra­struc­ture.

It has meant an elec­tri­fy­ing run for the dol­lar, which was up at 1.0645 per euro and 113.04 yen by 1020 GMT as it headed for its strong­est month against the Ja­panese cur­rency in seven years. US Trea­sury yields-the bench­mark for global bor­row­ing costs-were also ris­ing af­ter a two-day pause. They hov­ered just un­der 2.33 per­cent, hav­ing started Novem­ber at just over 1.8 per­cent. “Dol­lar strength has mainly been driven by ex­pec­ta­tions, so these can only carry you so far,” Com­merzbank cur­rency strate­gist Esther Re­ichelt said. “In the end we want to see some facts to show these changed ex­pec­ta­tions are jus­ti­fied.”

Euro­pean stocks were lifted by a jump in oil com­pa­nies amid the OPEC talk, although banks strug­gled as Royal Bank of Scot­land failed a Bank of Eng­land stress test and Ital­ian len­ders fell be­fore a ref­er­en­dum on the coun­try’s po­lit­i­cal sys­tem on Sun­day. Wor­ries about China’s fi­nan­cial sec­tor had also spread in Asia overnight. Shang­hai stocks fell about 1 per­cent amid con­cern about gov­ern­ment moves to stem cap­i­tal flight and halt the re­cent sharp fall in the yuan. “The stress could con­tinue for a while,” said Gu Weiy­ong, chief in­vest­ment of­fi­cer at hedge fund Ucom In­vest­ment Co. “Whether the sit­u­a­tion gets bet­ter de­pends on the will­ing­ness of the cen­tral bank to in­ject more liq­uid­ity into the sys­tem.”

Emerg­ing stocks rose marginally but were headed for their big­gest monthly fall since Jan­uary. Cur­ren­cies hit by the lat­est on­slaught from the dol­lar were also set to close Novem­ber with hefty losses. The Turk­ish lira and Mex­i­can peso have lost around 8 to 9 per­cent ver­sus the dol­lar for their big­gest monthly de­clines since 2008 and 2012 re­spec­tively. Not only riskier as­sets have suf­fered. Gold is on track for its big­gest monthly de­cline since mid 2013, largely pres­sured by the bets of a se­ries of US in­ter­est rate hikes over the next year.

The euro has fallen over 3 per­cent. Euro-zone in­fla­tion for Novem­ber came in at 0.6 per­cent year-on-year yes­ter­day. That was its high­est in two years, although still below the Euro­pean Cen­tral Bank’s pre­ferred level of just un­der 2 per­cent. The ECB meets next week, and ex­pec­ta­tions are the bank will ex­tend its stim­u­lus pro­gram, al­ready at more than 1.5 tril­lion eu­ros. Euro-zone gov­ern­ment bond yields nudged lower yes­ter­day. —Reuters

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