Rising oil prices lift global stocks; cenbanks expected to raise rates

Dollar slumps as investors anticipate Fed hike

NEW YORK, Sept 25, (Agencies): World shares climbed on Tuesday as oil prices above $80 a barrel lifted US energy stocks and as some central banks were expected to raise interest rates, spurring investors to look beyond the latest round of US-China tariffs.

On Wall Street, energy shares rose along with banks, which climbed in anticipation of a US Federal Reserve rate hike later on Tuesday. But US shares then lost some steam, weighed by losses in Facebook and chipmakers.

The Dow Jones Industrial Average rose 13.91 points, or 0.05 percent, to 26,575.96, the S&P 500 gained 0.54 points, or 0.02 percent, to 2,919.91 and the Nasdaq Composite added 6.31 points, or 0.08 percent, to 7,999.55.

MSCI’s gauge of stocks across the globe gained 0.11 percent, while the pan-European FTSEurofirst 300 index rose 0.51 percent.

Concerns over trade tensions between the US and China, the world’s two biggest economies, were offset by oil, which grabbed the spotlight and added to gains after surging more than 3 percent on Monday.

Brent crude futures shot to four-year highs of almost $82 a barrel, catapulted by imminent US sanctions on Iranian crude exports and the apparent reluctance of OPEC and Russia to raise output to offset the potential hit to global supply.

US crude rose 0.21 percent to $72.23 per barrel and Brent was last at $82.09, up 1.1 percent on the day.

That pushed German 10-year bond yields to four-month highs above 0.5 percent.

US 10-year Treasury yields touched a new four-month high above 3.10 percent in advance of government debt supply later Tuesday and on bets about Fed interest rate hikes.

Benchmark 10-year notes last fell 6/32 in price to yield 3.0983 percent, from 3.078 percent late on Monday.

The US dollar weakened ahead of the Fed’s two-day policy meeting, as investors have already priced in two more interest rate increases this year and some in 2019, leaving little room for further currency gains. The dollar index, tracking it against a basket of major currencies, fell 0.06 percent, with the euro up 0.16 percent to $1.1765.

US

US stocks were little changed on Tuesday, as higher oil prices lifted energy stocks and banks rose in anticipation of an interest rate hike, but losses in Facebook and chipmakers weighed on the market.

Facebook fell 2.5 percent and was the biggest drag on the Nasdaq and the S&P 500, after co-founders of its photo-sharing app, Instagram, resigned with scant explanation for the move.

The energy sector jumped 0.72 percent as Brent oil prices shot to a fouryear high, boosted by imminent US sanctions on Iranian crude exports and the reluctance of OPEC and Russia to raise output.

Financials overall rose 0.25 percent, with banks up 0.4 percent, in anticipation that the Federal Reserve will raise interest rates at the end of its two-day meeting later on Wednesday.

Bank of America, JPMorgan, Wells Fargo and Citigroup were all higher, also as yields on the benchmark 10year US government bond held at the key 3 percent level.

But the Fed’s third hike this year would make cash the most attractive it has been in about a decade, lowering the appeal of stocks, especially dividend paying companies such as utilities. The utilities sector slid 0.66 percent. .

At 9:55 am EDT the Dow Jones Industrial Average was up 43.00 points, or 0.16 percent, at 26,605.05, the S&P 500 was up 1.37 points, or 0.05 percent, at 2,920.74 and the Nasdaq Composite was down 0.89 points, or 0.01 percent, at 7,992.35.

The Philadelphia semiconductor index dropped 1.18 percent, with most chipmakers lower after rating cuts by brokerages Raymond James and KeyBanc. Intel, which was downgraded by Raymond James, fell 2.0 percent.

Nike was up 0.1 percent ahead of its quarterly results expected after market close.

CenturyLink tumbled 8.5 percent after Chief Financial Officer Sunit Patel left the company in a surprise move to join T-Mobile to oversee its integration with Sprint, both of which were little changed on the day.

Advancing issues outnumbered decliners by a 1.51-to-1 ratio on the NYSE and a 1.44-to-1 ratio on the Nasdaq.

The S&P index recorded 17 new 52week highs and three new lows, while the Nasdaq recorded 31 new highs and 12 new lows.

Europe

European shares closed higher on Tuesday boosted by gains among oil stocks and optimism over the Italian budget while British clothing retailer Next rallied after raising its profit guidance.

The pan-European STOXX 600 index rose ended the day up 0.45 percent, recovering part of the losses suffered in the previous session when worries over a protracted US-Sino trade war sparked profit-taking.

The oil and gas index jumped 1.7 percent and reached its highest level since May.

Oil majors BP, Shell and ENI rose 2.9 percent, 2.5 percent and 2.4 percent respectively more after Brent hit a fresh four-year high amid looming US sanctions against Iran and an apparent reluctance by OPEC and Russia to raise output to offset the expected to hit to supply.

Commodities also rose with basic materials up 1.8 percent.

Signs that Italy’s coalition was likely to reach a compromise over the 2019 budget lifted Italian stocks and bonds with the country’s top FTSE MIB equity index up around 1.5 percent, outperforming the broader market.

Italian banks, which are sensitive to political risk due to their big sovereign bond holdings, rose 1.5 percent. Their gains helped and growing expectations of a rate hike in the eurozone next year helped lifted the European banks up 0.7 percent.

State-controlled Italian defence contractor Leonardo rose more than 3 percent after it won a helicopter order from the US Air Force.

One of the top gainer on the STOXX was Next, up 7.7 percent.

The clothing retailer posted a 0.5 percent rise in first-half profit and raised its full-year guidance after better-than-expected trading in August and early September.

Heavyweight drugmaker Novartis rose 1.7 percent after saying it would cut about 2,200 jobs in Switzerland over the next four years to help boost profitability.

Asia

Asian markets mostly rose Tuesday but investors remained on edge after the latest tit-for-tat tariffs in the China-US trade row, while they are now looking ahead to the Federal Reserve’s next policy meeting.

While the levies had been widely expected, there are concerns about how long the dispute will last after China cancelled planned talks and said negotiations “cannot be carried out under the threat of tariffs”.

Tokyo, back after a public holiday, ended 0.3 percent higher, Singapore added 0.7 percent and Taipei gained 0.1 percent. There were also gains in Mumbai, Bangkok and Wellington.

But Shanghai, also returning from a long weekend, fell 0.6 percent by the close, while Sydney was barely moved and Manila lost more than one percent.

Hong Kong and Seoul were closed for public holidays.

■ Key figures around 0720 GMT Tokyo - Nikkei 225: UP 0.3 percent at 23,940.26 (close)

Shanghai - Composite: DOWN 0.6 percent at 2,781.14 (close)

Hong Kong - Hang Seng: Closed for a holiday

Dollar/yen: UP at 112.92 yen from 112.78 yen

Oil

Crude oil prices shot to a four-year high on Tuesday, catapulted by imminent US sanctions on Iranian crude exports and the apparent reluctance of OPEC and Russia to raise output to offset the potential hit to global supply.

Brent crude futures were up 61 cents at $81.81 a barrel by 1121 GMT, having touched a session peak of $82.20, the highest price since November 2014.

The oil price is on course for its fifth consecutive quarterly increase, the longest stretch of gains since early 2007, when a six-quarter run led to a record high of $147.50 a barrel.

US crude futures were up 30 cents at $72.38 a barrel, close to their highest since mid-July. The United States will target Iran’s oil exports with sanctions from Nov 4, with Washington applying pressure on governments and companies around the world to fall into line and cut their purchases.

“Iran will lose sizeable export volumes, and given OPEC+ reluctance to raise output, the market is ill-equipped to fill the supply gap,” Harry Tchilinguirian, global head of commodity markets strategy at French bank BNP Paribas, told the Reuters Global Oil Forum on Tuesday.

Mohammad Barkindo, secretary general of the Organization of the Petroleum Exporting Countries (OPEC), said in Madrid on Tuesday that it is important for OPEC and its partners, including Russia, to cooperate to ensure they do not “fall from one crisis to another”.

The International Energy Agency forecasts strong oil demand growth of 1.4 million barrels per day (bpd) this year and 1.5 million bpd in 2019, and said in its most recent report that the market was tightening.

US President Donald Trump has demanded that OPEC and Russia increase oil supplies to make up for the expected fall in Iranian exports. Iran is the third-largest producer in OPEC.

OPEC and Russia, however, have so far rebuffed such calls.

The so-called “OPEC+” group, which includes the likes of Russia, Oman and Kazakhstan, met at the weekend to discuss a possible increase in crude output, but the upshot of the gathering was that the group was in no rush to do so.

Gold

Gold edged up on Tuesday as the dollar drifted ahead of a U.S. Federal Reserve meeting, but the precious metal’s upside remains capped by strong US economic data that continues to underpin the greenback.

The dollar fell versus a basket of major currencies, with an expected Federal Reserve rate rise mostly priced in by traders, who will be looking for clues on the future pace of rate hikes from the central bank.

“In general, market dynamics are quite weak for gold.”

A strong dollar makes dollar-priced gold costlier for non-US investors, while rising U.S. interest rates typically deter investors from buying a non-yielding asset such as gold.

Spot gold was up 0.2 percent to $1,201.39 an ounce at 1410 GMT. US gold futures were up 0.1 percent at $1,206.10 an ounce.

Gold has fallen around 12 percent since in April, hit by rising US interest rates and a global trade war that threatens growth and has led investors to chose the dollar as a safe haven rather than gold.