Stocks rise, oil falls tracking recession risks
LONDON: Stock markets largely rose and oil prices retreated Monday as investors mulled the prospect of recession in the United States and elsewhere and central banks seek to tame soaring inflation with aggressive interest rate hikes.
The dollar, which had surged on Friday on the prospect of further large increases in US borrowing costs, fell back on profit-taking at the start of the new week. Speculation is growing that the US Federal Reserve will announce a third successive rate increase of three-quarters of a percentage point following a blockbuster US jobs report last week.
This week, all eyes will turn to the release of US July inflation data, which are expected to show a slight slowdown, but still not far from the four-decade highs seen in recent months. The latest reading “seems very unlikely to offer compelling evidence of a slowdown needed for the Fed to pull away from its aggressive inflation-fighting mode”, said SPI Asset Management analyst, Stephen Innes.
Oil prices retreated further on expectations of weaker demand amid a cost-of-living crisis. A rise in US crude stockpiles was partly responsible for a 10percent drop in prices last week.
Both main oil contracts have lost all the gains seen in the wake of Russia’s invasion of Ukraine, which led the United States and Europe to ban imports of Russian crude, hammering already thin supplies.
The US jobs report last week “highlighted how strong the economy remains although traders are now increasingly nervous about more aggressive tightening sending the economy into a deeper recession further down the road”, said Oanda analyst Craig Erlam.
“The resumption of Iran nuclear talks today is one potential downside risk for the oil price, given the ability of the country to quickly ramp up production if a deal is struck.” Iran on Sunday demanded that the UN nuclear watchdog, the International Atomic Energy Agency, “completely” resolve outstanding issues, as talks resume to revive a 2015 deal to rein in Tehran’s nuclear ambitions. Iranian sources have suggested that one of the key sticking points is a probe by the IAEA into traces of nuclear material found at undeclared Iranian sites.
Tokyo stocks reversed earlier losses and ended higher Monday, lifted by a lower yen and bargain hunting. The benchmark Nikkei 225 index rose 0.26 percent, or 73.37 points, to end at 28,249.24, while the broader Topix index added 0.22 percent, or 4.24 points, at 1,951.41.
Strong US jobs data helped buoy the Tokyo market, with hopes rising “for a soft-landing scenario of the US economy”, Daiwa Securities said. “Cyclical shares broadly gained, including stocks related to natural resources and materials, including mining, non-ferrous metal and steel,” Daiwa said.
There was a healthy appetite for bargain hunting, even after recent gains, according to Okasan Online Securities. And investors cheered the dollar’s climb to 135.27 yen, up from 135.00 yen on Friday in New York. A weaker yen can boost the profits of Japanese exporters.
The dollar’s gain “served as a tailwind for the tech sector in Tokyo”, Okasan said, with investors also focused on individual corporate earnings. SoftBank Group ended 0.74 percent up at 5,695 yen. After market close, the tech investor reported huge losses in the three months to June due to the global bear market.
Sony Group ended up 0.34 percent to 11,725 yen, and Uniqlo operator Fast Retailing added 0.31 percent to 83,860 yen. Tokyo Electron, a major producer of tools to build semiconductors, jumped 1.72 percent to 49,700 yen.
Toyota remained underwater throughout the day, ending down 0.33 percent to 2,116 yen. Nintendo also ended down 1.72 percent at 57,710 yen.