Stocks splutter as oil races to near six-month high

LONDON - 23 April 2019: Oil prices jumped to near six-month highs on Tuesday as the United States tightened sanctions on Iran, sending shares of energy companies higher but largely failing to help the currencies of the main crude-oil producers.

News that the U.S. had told buyers of Iranian oil to stop purchases by May 1 or face sanctions pushed Brent toward $75 a barrel and made for a lively return from the four-day Easter break for Europe’s markets. [O/R]

Oil and gas shares jumped more than 1.7 percent for their best start in six weeks, though almost every other sector suffered. So did bonds, as higher energy costs hung over profits and nudged up inflation expectations. [.EU][GVD/EUR]

Foreign-exchange market volatility was still largely absent. The dollar held near a three-week high, but the usual beneficiaries of higher oil prices, the Canadian dollar and Norwegian crown, dipped to $1.33 and $8.52 respectively. [/FRX]

“Oil is interesting, but the interesting thing for FX is that we are not getting the usual feed-through in the petrocurrencies,” said Saxo bank’s head of FX strategy, John Hardy, adding that might be caused by questions about Chinese stimulus.

Both the Canadian dollar and the crown had gained on Monday, and the Russian rouble, another petrocurrency, hit its highest against the euro in more than a year its highest against the dollar in a month.

Overnight, MSCI’s index of Asia-Pacific shares ended 0.1 percent higher and Japan’s Nikkei closed up 0.2 percent. Oil and gas gains were offset by losses for airlines and other transport shares facing higher fuel costs.

The White House said after its Iran move it was working with Saudi Arabia and the United Arab Emirates to ensure oil markets were “adequately supplied,” but traders had already been worried about tight supplies.

Oil prices are up nearly 50 percent since late December, and before the re-imposition of sanctions last year Iran was the fourth-largest producer among the Organization of the Petroleum Exporting Countries, at around 3 million barrels per day.

Oil prices are “not so high that it crushes manufacturing by putting energy-price inputs up, but it is producing a nice boost to oil-producing nations,” said Robert Carnell, Singapore-based chief economist and head of research for Asia Pacific at ING.

Carnell sees Brent crude’s sweet spot at between $65 and $75 per barrel: “Above this, you may see some negative impact.”

SRI LANKA

Sri Lanka’s stock market and government bonds both fell as trading resumed after bombings had killed more than 300 people on Sunday. Tourism is likely to collapse, which would deal a serious blow to the island’s economy and financial markets.

The International Monetary Fund last month extended a $1.5 billion loan to Sri Lanka into 2020, a key step in keeping foreign investors involved in what so far this year has been a top-performing frontier debt market.

In China, major benchmarks dipped in and out of negative territory amid concern that Beijing will slow the pace of policy easing after unexpectedly strong first-quarter economic data last week.

China’s blue-chip stocks have surged over 30 percent so far this year on expectations of more stimulus and hopes Beijing and Washington will reach an agreement to end their nine-month trade dispute.

“We’ve had a fantastic run in Chinese equities year-to-date. Some profit taking is completely normal. I don’t think China is changing its policy that quickly,” said Stefan Hofer, chief investment strategist at LGT Bank Asia in Hong Kong.