Oil prices rise, markets narrow odds for Fed hike

  • Asian stock markets:
  • Brent rose 5% as OPEC+ announced supply cuts
  • Nikkei edges up, but US stock futures slip
  • Dollar gains, markets see more chance of May Fed hike

SYDNEY, April 3 (Reuters) – Oil prices rose on Monday after Saudi Arabia and other OPEC+ producers announced a surprise round of output cuts, a riskier sign for global inflation days after sluggish U.S. price data boosted market confidence.

Brent oil futures were up $3.94 at $83.83 a barrel on the news release, which would cut about 1.16 million barrels a day. U.S. crude was up $3.84 at $79.51, off its earlier high of $81.69.

The change comes ahead of a virtual meeting of the OPEC+ ministerial group, which includes Saudi Arabia and Russia.

“The engagement of major OPEC+ members suggests that adherence to production cuts may be stronger than in the past,” said Vivek Dhar, energy analyst at CBA.

“That means oil markets could see a cut of 1% or more of global oil supply starting in May.”

The latest cut could push oil prices up to $10 a barrel, the head of investment firm Pickering Energy Partners said on Sunday.

Goldman Sachs raised its forecast for Brent to $95 by the end of the year and $100 in 2024.

“Today’s surprise cut is consistent with the new OPEC+ theory, as they can operate without significant losses in market share,” Goldman said.

“Although surprising, this cut reflects important economic and potentially political considerations.”

A surge in energy costs overshadowed a slower reading for core U.S. inflation on Friday.

S&P 500 futures fell 0.3% on Monday, while Nasdaq futures lost 0.6%. EUROSTOXX 50 futures shed 0.1%, while FTSE futures added 0.1%.

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MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was down 0.4%.

Chinese blue chips (.CSI300) rose 0.7% after the Caixin/S&P survey of manufacturers showed a surprise drop to 50.0 in March and contrasted with strength seen in services surveys last week.

Japan’s Nikkei (.N225) edged up 0.5%, although it came in below expectations of manufacturers.

Better news came from the final Bank of Japan manufacturing survey, which improved to 49.2 in March from 47.7 in February, the slowest contraction since November.

Fewer food cuts

The shock to inflation expectations sent yields on US two-year Treasuries up 4 basis points to 4.11%, while Fed funds futures tempered expectations for rate cuts later in the year.

The market raised the probability of the Federal Reserve hiking rates by a quarter point to 61% in May, up from 48% on Friday, and a 38 basis point cut by the end of the year.

It was followed by a dollar gain of 0.5% to 133.44 against the Japanese yen, while the euro fell almost 0.5% to $1.0789. Rising oil prices are bad news for Japan’s trade balance, as it imports most of its energy.

Gold was down nearly 0.9% to $1,950 an ounce, boosting the dollar.

Although reaction to next Friday’s jobs report will be muted by the Easter holiday, the outlook for US tariffs could be affected by this week’s ISM manufacturing and wages data.

Central banks in Australia and New Zealand hold policy meetings this week, with the latter expected to raise rates another quarter point to 5.0%.

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Markets are betting that the Reserve Bank of Australia (RBA) will pause its tightening campaign after 10 straight hikes. ,

Reporting by Wayne Cole; Editing by Sri Navaratnam, Stephen Coates and Kenneth Maxwell

Our Standards: Thomson Reuters Trust Principles.

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