Energy firms surged on the back of further gains in oil prices in Asian trade Friday wile regional equity markets mostly rose as traders keep a cautious eye on high-level China-US trade talks.
The benchmark Brent crude contract broke the $80 mark Thursday for the first time in three-and-a-half years as a perfect storm of issues fuels concerns about supplies, with some forecasting it could break $100 at some point.
Brent and WTI are up about a third from their 2018 lows seen in February with upward pressure coming from Donald Trump’s decision to rip up the Iran nuclear deal, economic uncertainty in key producer Venezuela and an output cap by OPEC and Russia.
That comes on top of continued improvement in the global economy and ongoing unrest across the Middle East.
Higher prices are boosting expectations for fatter profits for global energy giants and on Friday Hong Kong-listed PetroChina was among the big gainers, surging more than four percent, while CNOOC put on three percent.
Inpex climbed 2.5 percent in Tokyo while Santos jumped more than one percent in Sydney.
And Patrick Pouyanne, chief executive officer of French oil explorer Total SA, told Bloomberg News that if Trump imposes threatened sanctions on Iran “I wouldn?t be surprised to see $100 per barrel in the coming months”.
However, rising oil prices are increasing expectations of a jump in global inflation.
And the main focus is on the US, where the Federal Reserve is in the midst of an interest rate-raising cycle, with fears it could announce three more hikes this year.
Key US 10-year Treasury yields are already at seven-year highs above three percent and the prospect of paying more to borrow money has spooked investors, sending the dollar higher but causing a drag on stock markets.
– Good news? –
Adding to the unease is the tariffs spat between the US and China, which has raised concerns about a trade war between the world’s two biggest economies.
President Xi Jinping’s pointman on economic issues is in Washington holding talks with a top-level delegation led by Treasury Secretary Steven Mnuchin, with markets hoping the two sides can reach an agreement.
Trump sent Wall Street tumbling on Thursday when he lashed out at European and Chinese trading partners and cast doubt on the chances of reaching a deal with Beijing.
“I tend to doubt it,” Trump said about the chances of success for the talks. “China has become very spoiled… because they always got 100 percent of whatever they wanted from the United States.”
However, Bloomberg News reported Friday that the Chinese side had offered to work on slashing its trade surplus with the US by $200 billion by increasing imports. The figure is the same as demanded by Mnuchin and his team during fruitless talks in Beijing recently.
Such an agreement would be “good news for market sentiment”, Dariusz Kowalczyk, senior emerging-market strategist at Credit Agricole, said.
China Friday also announced it had dropped its anti-dumping and anti-subsidy probe into US sorghum imports.
Asian dealers were broadly upbeat in early trade Friday. Hong Kong’s Hang Seng Index rose 0.2 percent and Shanghai was up 0.3 percent. Tokyo ended the morning 0.3 percent higher as exporters were lifted by a weaker yen, which is at a four-month low against the dollar.
Seoul added 0.3 percent but Sydney dipped 0.2 percent and Singapore shed 0.4 percent.
The future of a summit between Trump and North Korean leader Kim Jong Un is keeping traders on edge after Pyongyang threatened to pull out over US demands that it get rid of its nuclear programme.
However, the president looked to keep the talks on course by offering Kim a guarantee he can stay in power if he abandons his weapons.
– Key figures around 0300 GMT –
Tokyo – Nikkei 225: UP 0.3 percent at 22,896.11 (break)
Hong Kong – Hang Seng: UP 0.2 percent at 31,008.67
Shanghai – Composite: UP 0.3 percent at 3,164.12
Euro/dollar: UP at $1.1806 from $1.1796 at 2100 GMT
Pound/dollar: DOWN at $1.3511 from $1.3515
Dollar/yen: UP at 110.98 yen from 110.76 yen
Oil – West Texas Intermediate: UP nine cents at $71.58 per barrel
Oil – Brent North Sea: UP 19 cents at $79.49 per barrel
New York – Dow: DOWN 0.2 percent at 24,713.98 (close)
London – FTSE 100: UP 0.7 percent at 7,787.97 points (close)