Oil prices fell more than 5 percent on Monday amid rising prospects of Iranian oil returning to the market and data showing China’s economic recovery is faltering amid Covid-19 restrictions.
Equity markets were broadly stable and the dollar traded mixed as investors welcomed signs of a slowdown in US inflation, which nonetheless remains at the highest levels in decades.
“The dark clouds of recession appear to be gathering over the global economy, with the latest data out of China adding to those fears,” said market analyst Michael Hewson of CMC Markets UK.
The People’s Bank of China surprisingly cut interest rates on Monday, as a series of data showed weakness in the world’s second-largest economy.
The numbers showed that China’s industrial production and retail sales growth came in lower than expected in July.
Industrial production rose 3.8 percent year-on-year but declined from 3.9 percent in June, well below analysts’ forecasts.
“The risk of stagflation in the global economy is increasing and the basis for a domestic recovery is not yet solid,” China’s Bureau of Statistics warned.
Stagnation refers to prolonged high inflation combined with rising unemployment and weak growth.
Beijing’s rigid adherence to a zero-Covid strategy has hampered the economic recovery as sudden lockdowns and lengthy quarantines hurt business activity and a recovery in consumption.
Hewson added that “troubles in the housing sector aren’t helping either, where many homebuyers are halting mortgage payments in protest at delays in the completion of new homes.”
– Iran Talks –
Meanwhile, Iran’s foreign minister said Tehran would present its “final” proposal on talks to revive its 2015 nuclear deal with world powers later Monday, after Washington accepted key demands.
A deal would mean Iran’s crude production of 2.5 million barrels a day would no longer be subject to international sanctions and would help ease supply constraints that have been driving prices higher.
“Iran would flood the market,” said analyst Aditya Saraswat of energy research firm Rystad, adding the country could increase production by another million barrels a day.
Oil prices, already significantly lower according to Chinese data, pushed further lower, posting daily falls of more than 5 percent before later recouping some of their losses.
Europe’s major stock markets ended with modest gains as Wall Street stocks tumbled in morning trading.
City Index and FOREX.com market analyst Fawad Razaqzada said talk of a US recession is back after a key manufacturing survey turned negative, a signal of deteriorating business conditions.
Markets are also eagerly awaiting the release of minutes from the Fed’s last July monetary policy meeting on Wednesday for clues on the Federal Reserve’s interest rate plans.
Investors fear that after consecutive three-quarter-point hikes, further hikes of a similar magnitude could stall the economic recovery.
The negative reading for the new orders question in the New York Federal Reserve’s Empire State Manufacturing Survey – compared to July’s positive reading – shows that rate hikes may already be having an effect on slowing the activity that has been fueling inflation.
Patrick O’Hare, an analyst at Briefing.com, called lower stock prices a reflection of “weaker demand, coupled with a slowing economy, and a consequent weakening of earnings growth prospects.”
– Key figures at 1530 GMT –
North Sea Brent Crude: FALSE, up 4.0 percent at $94.21 a barrel
West Texas Intermediate: FALSE, up 4.1 percent to $88.28 a barrel
New York – Dow: minus less than 0.1 percent at 33,742.42 points
EURO STOXX 50: up 0.3 percent to 3,787.61
London – FTSE 100: up 0.1 percent at 7,509.15 (close)
Frankfurt – DAX: Up 0.2 percent at 13,816.61 (close)
Paris – CAC 40: up 0.3 percent to 6,569.95 (close)
Tokyo – Nikkei 225: up 1.1 percent at 28,871.78 (close)
Hong Kong – Hang Seng Index: down 0.7 percent at 20,040.86 (close)
Shanghai – Composite: FLAT at 3,276.09 (close)
Euro/Dollar: DOWN at $1.0187 from $1.0261 on Friday
Pound/dollar: DOWN at $1.2082 from $1.2135
Euro/Pound: DOWN at 84.37p from 84.53p
Dollar/Yen: DOWN at 133.06 yen from 133.50 yen
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