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Asian Stocks Fall as Oil Prices Surge Amid Fed Hike Bets
Developing
In Short: Asian stocks declined, led by South Korea and Japan, as oil prices reached four-month highs, driven by disruptions in Middle Eastern supplies and rising inflation expectations.
The MSCI Asia Pacific Index fell 1.4%, with South Korea and Japan leading the declines, following a surge in oil prices and a hotter-than-expected US producer price report. This data reinforced bets on an imminent US Federal Reserve interest rate hike, which does not support risk assets, according to economists.
Warren Patterson, head of commodities strategy at ING Groep, noted that rising oil prices could be a concern ahead of the US midterms. Stephanie Roth, chief economist at Wolfe Research, suggested that yields and oil need to come down for stocks to work.
The surge in oil prices, reaching almost $110 a barrel, also pushed Treasury yields to multi-year highs, contributing to the sell-off in US and Asian markets. Moody's Analytics Chief Economist Mark Zandi reported that American consumers have spent over $100 billion more this year due to elevated gasoline and diesel prices, driven by the Iran war.
What's still developing
- Fuel prices have soared since the US-Israel war with Iran began at the end of February, with the fighting severely disrupting supplies of crude oil - a key ingredient in petrol and diesel - across the Middle East.
- RAC senior policy officer Rod Dennis said the latest increase in fuel prices showed just how exposed drivers in the UK can be to events thousands of miles away.
- "With the cost of a barrel of oil having averaged $96 for the last week, wholesale prices are surging and that's already feeding through to prices at the forecourt." He urged motorists to drive as efficiently as possible and to ensure they find the cheapest forecourts they can.
- “A hot US PPI print and a hawkish-sounding Christine Lagarde both speak to a reality that points to the possibility a global central bank rate hike cycle may be in the offing, which does not support risk assets today or in the short term,” said Joe Brusuelas, chief economist at RSM US.
- A softer reading may ease the rise in bond yields and rate hike expectations that has weighed on equities, while another upside surprise risks extending the sell-off.
- Oil Prices Surge to Four-Month Highs as War Risks Mount Mexico’s government is slashing financial assistance for the state energy major by as much as 70% despite Pemex’s continued struggle to pay down debt and boost production.
- This suggests Pemex’s problems go deeper than low international oil prices.
Sources
- Businesstimeslink