- Oil exceeds $100 per barrel, Brent is making great progress.
- Wall St and Nikkei futures plunge and sell higher amid inflation risk.
- The dollar is in demand as a source of liquidity, the euro is slipping.
Stock futures fell sharply in Asia on Monday as the inflationary impulse from rising oil prices threatened to raise the cost of living, and perhaps interest rates, around the world, while investors’ thirst for liquidity kept demand for the U.S. dollar high.
Brent jumped 17% to $108.73 a barrel, having already climbed 28% last week, while US crude rose 19% to $108.33 a barrel.
Iran has named Mojtaba Khamenei to succeed her father, Ali Khamenei, as supreme leader, signaling that hardliners remain firmly in control in Tehran, a week after the start of the conflict with the United States and Israel.
With no sign of an end to hostilities in the Middle East and oil tankers still daring to cross the Strait of Hormuz, investors were bracing for a long period of rising energy prices. 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 barrels, followed by moderation as the conflict eases soon,” he added. “But in the absence of a clear and decisive policy resolution, Brent crude oil prices are expected to stabilize at a high level of $80 per barrel until the middle of the year.”
Such an outcome could reduce global economic growth by an annualized 0.6% for the first half of this year and increase consumer prices by an annual rate of 1%, he said.
Kasman warned that a wider, protracted conflict could push oil above $120 a barrel and pose the risk of a global recession.
Wall Street led the way lower in early trading, with S&P 500 ESc1 futures losing 1.6%, while Nasdaq futures plunged 1.7%.
Japanese Nikkei NKc1 futures fell to 52,400, down drastically from Friday’s cash close of 55,620.
In bond markets, the risk of higher inflation outweighed safe-haven considerations, and 10-year Treasury futures TYc1 slipped 13 ticks, while three-year futures fell 22 ticks.
Investors sought the liquidity of the dollar while avoiding the currencies of net energy-importing countries, including Japan and much of Europe.
The dollar firmed 0.3% to 158.35 yen, while the euro slipped 0.7% to $1.1537.
Gold fell 0.6% to $5,140 an ounce as traders speculated that investors should book profits where they can to cover losses elsewhere.
