Crude oil extended weekly losses on Thursday as the euro struggled to recover from 20-year lows and stocks were mixed as recession fears continued to cast a shadow on trading floors.
Expectations of a contraction in some of the world’s leading economies, including China, where a renewed flare-up of Covid-19 has sparked fears, have risen in recent weeks on central bank rate hikes aimed at curbing decades-high inflation .
The surge in inflation was driven by rising energy costs and surging demand after lockdown, but observers said concerns of a slowdown – along with signs consumers were being put off by high prices – weighed on the oil market.
Both major contracts were down more than a percent on Thursday and are down about 10 percent this month. They are now below $100 for the first time since April.
Data on Wednesday showed that US demand appeared to be softening as inventories rose, messing up expectations for a contraction, while there were also some concerns that the outbreaks in China – including another surge in Shanghai – could mean that Major cities will be locked down again.
Still, Vanda Insights’ Vandana Hari said prices were likely to recover.
“There aren’t many rational valuations — it’s panic selling,” she said. “Fears may not end but could be brushed aside if supply shortages come to the fore again. The market equilibrium is strained.”
While the fall in prices could dampen inflation and give central banks some leeway to ease their rate-hiking cycle, the Federal Reserve remains on course for several more hikes.
On Wednesday, minutes from June’s monetary policy meeting indicated officials would make another three-quarter-point rate hike this month — after the first such hike in 28 years in June — and said they were concerned “inflationary pressures have yet to pick one.” Showing signs of slowing down”.
They also noted the need to maintain credibility among Americans and said there was “a significant risk … that elevated inflation could take hold if the public began to question the committee’s resolve.” place”.
The increases are likely to last until the end of the year, the minutes said.
Despite the prospect of higher borrowing costs, Wall Street’s three main indices ended positively.
But Asia struggled to take the baton as the region’s markets were mixed.
Tokyo, Shanghai, Sydney, Seoul, Taipei and Jakarta all rose, but Hong Kong, Singapore, Wellington and Manila fell.
The Fed’s determination to hike rates has sent the dollar higher against most other currencies, with the euro under particular pressure due to the European Central Bank’s much slower response to the rise in prices.
The single currency hit a 20-year low against the greenback this week, amid mounting fears for the euro-zone economy as it faces a severe energy crisis over sanctions on Russia amid the possibility of Moscow halting gas supplies.
And while the ECB has announced it will start raising rates this month, analysts said there was a lot of uncertainty as officials had to balance support for the currency with avoiding fragmentation, which would see members’ borrowing costs increase differ greatly from each other.
Now there is growing conviction that the euro will fall to par with the dollar within a few weeks.
“I’m really concerned about the recent speeches over the past few days, which show that there are many concerns and many disagreements within the Governing Council,” said Vasileios Gkionakis of Citigroup.
“If the ECB wants to tame inflation and support exchange rates… then it needs to do two things: raise interest rates and develop an effective anti-fragmentation mechanism,” he told Bloomberg.
And Societe Generale’s Kit Juckes added that the currency “remains virtually unbuyable this summer.”
“Europe’s energy dependency on Russia is falling, but not fast enough to avoid a recession if the (gas) pipeline shuts down. If that happens, the (euro) will probably lose another 10 percent or so.”
– Key figures at 0300 GMT –
Tokyo – Nikkei 225: up 0.7 percent at 26,298.66 (breakthrough)
Hong Kong – Hang Seng Index: down 0.6 percent at 21,459.42
Shanghai — Composite: up 0.3 percent to 3,356.82
Euro/dollar: rise to $1.0193 from $1.0186 on Wednesday
Pound/dollar: rise to $1.1937 from $1.1921
Euro/Pound: DOWN at 85.40p from 85.43p
Dollar/Yen: DOWN at 135.64 yen from 135.93 yen
West Texas Intermediate: FALSE, up 1.0 percent at $97.54 a barrel
North Sea Brent Crude: FALSE, up 1.1 percent at $99.54 a barrel
New York – Dow: up 0.2 percent at 31,037.68 (close)
London – FTSE 100: up 1.2 percent at 7,107.77 (close)
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