Oil prices extended losses on Tuesday after weak data from the US and China bolstered recessionary fears, although stocks benefited on hopes the numbers would allow central banks to slow the pace of interest rate hikes.
Stock traders tracked a rise in Wall Street led by tech companies on a rise in bets that the Federal Reserve will not hike borrowing costs by 75 basis points for a third straight meeting next month.
Both major crude oil contracts fell in early Asian trading after falling around 3 percent the day before as demand expectations were lowered amid a raft of weak economic indicators across the major economies.
Signs that Iran is moving towards a nuclear deal added downward pressure on prices, with a deal seen allowing the country to resume selling on the global market.
Analysts said Tehran could deliver 2.5 million barrels a day, which would give a much-needed shot in the arm to supplies battered by sanctions on Russia in response to its invasion of Ukraine.
Libya has also increased production, helping prices fall to six-month lows and erasing gains made after the start of the Ukraine war.
However, analysts warned that there may still be a way to finalize an Iran deal due to the upcoming US election.
“A deal with Iran would likely not be popular with US voters and is therefore difficult to envision ahead of the November midterm elections,” said Ray Attrill of the National Australia Bank.
“However, markets are currently vulnerable to optimism and hopes of a deal…have increased downward pressure on oil prices.”
With the rise in oil prices being a major driver of inflation around the world, the drop has fueled hopes that headline numbers may be beginning to decline.
This has led to speculation that central bank governors could hike rates more slowly and then consider turning monetary policy towards cuts as early as next year.
The prospect of a less painful hiking campaign has sparked a rally in equities from their June lows.
And on Tuesday, Asia built on Wall Street’s upbeat performance.
Hong Kong and Shanghai rose after Beijing cut interest rates on Monday as the world’s second-largest economy struggles to recover from a slump in activity caused by extended Covid lockdowns.
Sydney, Seoul, Taipei, Manila, Jakarta and Wellington were also up, although Tokyo was flat and Singapore dipped.
Still, analysts warned that the economic outlook, while boosting stocks, could keep them subdued or even fall back.
“The risk of markets falling below the June lows is quite high,” AMP Services’ Shane Oliver told Bloomberg Television. The weak data forecast “weaker earnings growth in the US,” he added.
– Key figures at 0230 GMT –
West Texas Intermediate: FALSE, up 0.6 percent at $88.86 a barrel
North Sea Brent Crude: FALSE, up 0.9 percent at $94.27 a barrel
Tokyo – Nikkei 225: FLAT at 28,861.76 (pause)
Hong Kong – Hang Seng Index: up 0.4 percent to 20,110.58
Shanghai – Composite: up 0.4 percent to 3287.73
Euro/Dollar: DOWN at $1.0164 from $1.0166 on Monday
Pound/dollar: rise to $1.2057 from $1.2055
Euro/Pound: UP at 84.32p from 84.29p
Dollar/yen: up at 133.37 yen from 133.33 yen
New York – Dow: up 0.5 percent at 33,912.44 (close)
London – FTSE 100: up 0.1 percent at 7,509.15 (close)
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