World stocks volatile as oil hits near six-month highs
The Canadian dollar and Norwegian krone are subdued with Sri Lanka’s markets falling after Easter attacks
London — Oil prices jumped to near six-month highs on Tuesday as the US tightened sanctions on Iran, sending shares of energy companies higher but largely failing to help the currencies of the main crude-oil producers.
News that the US had told buyers of Iranian oil to stop purchases by May 1 or face sanctions pushed Brent towards $75 a barrel and made for a lively return from the four-day Easter break for Europe’s markets.
Oil and gas shares jumped more than 1.7% for their best start in six weeks, though almost every other sector suffered. So did bonds, as higher energy costs hung over profits and nudged up inflation expectations.
Foreign-exchange market volatility was still largely absent. The dollar held near a three-week high, but the usual beneficiaries of higher oil prices, the Canadian dollar and Norwegian krone, dipped to $1.33 and $8.52 respectively.
“Oil is interesting, but the interesting thing for forex is that we are not getting the usual feed-through in the petrocurrencies,” said Saxo bank’s head of forex strategy John Hardy, adding that this might be caused by questions about Chinese stimulus.
Both the Canadian dollar and the Norwegian krone had gained on Monday, and the Russian rouble, another petrocurrency, hit its highest against the euro in more than a year, and its highest against the dollar in a month.
Overnight, MSCI’s index of Asia-Pacific shares ended 0.1% higher and Japan’s Nikkei closed up 0.2%. Oil and gas gains were offset by losses for airlines and other transport shares facing higher fuel costs.
The White House said after its Iran move it was working with Saudi Arabia and the United Arab Emirates (UAE) to ensure oil markets were “adequately supplied”, but traders had already been worried about tight supplies.
Oil prices are up nearly 50% since late December, and before the re-imposition of sanctions last year Iran was the fourth-largest producer among oil cartel Opec at about 3-million barrels per day (bpd).
Oil prices are “not so high that it crushes manufacturing by putting energy-price inputs up, but it is producing a nice boost to oil-producing nations”, said Robert Carnell, Singapore-based chief economist and head of research for Asia Pacific at ING.
Carnell sees Brent crude’s sweet spot at between $65 and $75 a barrel: “Above this, you may see some negative impact.”
Sri Lanka’s stock market and government bonds both fell as trading resumed after bombings killed more than 300 people on Sunday. Tourism is likely to collapse, which will deal a serious blow to the island’s economy and financial markets.
Last month, the International Monetary Fund(IMF) extended a $1.5bn loan to Sri Lanka into 2020, a key step in keeping foreign investors involved in what so far this year has been a top-performing frontier debt market.
In China, major benchmarks dipped in and out of negative territory amid concern that Beijing will slow the pace of policy easing after unexpectedly strong first-quarter economic data last week.
China’s blue-chip stocks have surged more than 30% so far this year on expectations of more stimulus and hopes Beijing and Washington will reach an agreement to end their nine-month trade dispute.
“We’ve had a fantastic run in Chinese equities year-to-date. Some profit taking is completely normal. I don’t think China is changing its policy that quickly,” said Stefan Hofer, chief investment strategist at LGT Bank Asia in Hong Kong.