- Oil limits above $100 per barrel, Brent is making great progress.
- Wall St, Nikkei futures dive, returns on inflation risk.
- Dollar in demand as a source of liquidity, euro advances.
Stock futures fell sharply in Asia on Monday as the inflationary pulse from rising oil prices threatened to raise the cost of living and perhaps interest rates across the globe, while an investor hunger for liquidity kept the US dollar in demand.
Brent rose 17% to $108.73 a barrel. barrel, after already rising 28% last week, while US crude rose 19% to $108.33 a barrel. barrel.
Iran named Mojtaba Khamenei to succeed his father, Ali Khamenei, as supreme leader, signaling that hardliners remain firmly in charge in Tehran a week after the standoff with the United States and Israel.
With no sign of an end to hostilities in the Middle East and tankers still not daring to cross the Strait of Hormuz, investors braced for a long stretch of higher energy costs. OR
“The global economy remains dependent on the concentrated flow of oil and natural gas from the Middle East through the Strait of Hormuz,” noted Bruce Kasman, chief economist at JPMorgan.
“The short-term scenario is a short-term rise towards $120 bbl followed by moderation as the conflict soon subsides,” he added. “However, absent a clear and decisive policy decision, Brent crude oil prices are expected to fall to an elevated $80 bbl until mid-year.”
Such an outcome could reduce global economic growth by 0.6% on an annual basis for the first half of this year and raise consumer prices by an annual rate of 1%, he said.
Kasman warned that a wider and sustained conflict could send oil above $120 a barrel and risk a global recession.
Wall Street led the way down in early trade as S&P 500 futures ESc1 fell 1.6%, while Nasdaq futures dipped 1.7%.
Japan’s Nikkei futures NKc1 fell to 52,400, down sharply from Friday’s cash close of 55,620.
In bond markets, the risk of rising inflation outweighed safe-haven considerations, with 10-year Treasury futures TYc1 down 13 ticks, while 3-year futures fell 22 ticks.
Investors sought the liquidity of dollars while avoiding currencies from countries that are net energy importers, including Japan and much of Europe.
The dollar strengthened 0.3% to 158.35 yen, while the euro fell 0.7% to $1.1537.
Gold fell 0.6% to $5,140 a barrel. ounce, with traders speculating that investors would have to book profits where they could to cover losses elsewhere.
