Wayne Cole (Reuters)
Sydney, Australia â
Mon September 27, 2021
Asian stocks surged higher on Monday as risk sentiment improved, although a surge in oil prices to three-year highs could stoke inflation fears and worsen the recent hawkish turn by some major central banks .
Oil broke July peaks as global production disruptions forced energy companies to remove large amounts of crude from inventories, while a shortage of natural gas in Europe pushed costs up across the continent .
Brent added an additional 98 cents on Monday to US $ 79.07 a barrel, while US crude rose 97 cents to $ 74.95.
“We expect this rally to continue, with our year-end forecast for Brent of $ 90 / bbl versus $ 80 / bbl previously,” Goldman Sachs analysts wrote in a client note.
“The current global oil supply and demand deficit is larger than expected, with the recovery in global demand from the Delta impacting even faster than our consensus forecast above.”
Such an increase could fuel speculation that global inflation will prove to be more sustainable than expected and accelerate the end of super cheap money, favoring reflation trades in bank and energy stocks while squeezing bond prices.
The largest MSCI index of Asia-Pacific stocks outside of Japan strengthened 0.5%, although this follows three straight weeks of losses.
Japan’s Nikkei gained 0.4% in hopes of further fiscal stimulus once a new prime minister is chosen. Japan will hold a Liberal Democratic Party leadership race on September 29, and the winner is guaranteed to become the country’s next prime minister due to the party’s parliamentary majority.
Nasdaq futures were up 0.4% and S&P 500 futures were up 0.5%.
Chinese blue chips gained 1.1% as the country’s central bank pumped more money into the financial system and investors dared to hope Beijing would limit the fallout from the ailing China Evergrande group.
“We expect Chinese policymakers to allow debt deleveraging of the real estate sector with the aim of reducing moral hazard, but we are confident that they will actively manage the restructuring and effectively limit the financial fallout,” he said. JPMorgan analysts said in a note.
Eyes will also be on U.S. fiscal policy with the House of Representatives due to vote this week on a $ 1 trillion infrastructure bill, while a September 30 deadline for funding federal agencies could force the second partial government shutdown in three years.
The week is packed 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 latest hawkish turn from the US central bank, and several others around the world, saw bond yields swing before ending sharply higher last week.
The 10-year Treasury is at its highest since early July at 1.46% as reflation trade may pick up as the world braces for the end of super cheap silver.
The rebound in yields supported the US dollar, particularly against emerging market currencies that compete with Treasuries for global funds.
Against a basket of currencies, the dollar was firm at 93.249 and just off the 10 month August high at 93.734.
It even gained ground against the yen to hit a major chart barrier at 110.79. A break in this would bring the currency to a territory not visited since early July.
The euro was stable at $ 1.1719 as investors pondered the implications of a German government led by center-left Social Democrats after a narrow victory in Sunday’s election.
The Social Democrats have demanded a “clear mandate” to lead a government for the first time since 2005, although it was not yet clear whether they could actually form a coalition.
“The likelihood of a political shift to the left suggests that Germany’s fiscal stance may become less of a drag on the economy over the next few years than is currently expected,” CBA analysts said in a note. “This would ultimately benefit the euro.”
Bitcoin stabilized at $ 43,828 after falling on Friday after Chinese regulators announced a blanket ban on all crypto transactions and mining.
The stronger dollar weighed on gold, although it edged up Monday to $ 1,759 an ounce and above a recent six-week low of $ 1,738.