LONDON: Oil jumped more than 6 per cent and the dollar, US bond yields and stocks all pushed higher on Wednesday as signals from OPEC suggested the group was closing in on a deal to cut production.
Combined with fresh concern about China’s banking system, a stress test for British banks and a raft of euro zone data, the OPEC meeting topped off a wild November for financial markets that has been dominated by Donald Trump’s victory in the US presidential election.
Brent oil CLc1 was still rising, having surged back toward $49 a barrel after OPEC’s secretary general said a deal would be reached as he headed into a meeting of the group in Vienna.
Top oil producer Saudi Arabia said a deal was close despite some loose ends. Iran, which is considered crucial to a breakthrough because its output has been rising after western sanctions were lifted, said it was also “optimistic”.
“I think we are looking at a very positive meeting,” added UAE Energy Minister Suhail bin Mohammed al-Mazroui, who was echoed by counterparts from Angola, Algeria and Nigeria.
A possible rise in oil prices has also been feeding expectations for a rebound in global inflation. Those expectations have been gathering momentum since Trump promised $1 trillion of new spending on infrastructure.
It has meant an electrifying run for the dollar, which was up at 1.0645 per euro EUR= and 113.04 yen JPY= by 1020 GMT (5:20 am ET) as it headed for its strongest month against the Japanese currency in seven years.
US Treasury yields US10YT=RR – the benchmark for global borrowing costs – were also rising after a two-day pause. They hovered just under 2.33 per cent, having started November at just over 1.8 per cent.
“Dollar strength has mainly been driven by expectations, so these can only carry you so far,” Commerzbank currency strategist Esther Reichelt said. “In the end we want to see some facts to show these changed expectations are justified.”
European stocks were lifted by a jump in oil companies .SXEP amid the OPEC talk, although banks struggled as Royal Bank of Scotland (RBS.L) failed a Bank of England stress test and Italian lenders fell before a referendum on the country’s political system on Sunday.
Worries about China’s financial sector had also spread in Asia overnight. Shanghai stocks fell about 1 per cent amid concern about government moves to stem capital flight and halt the recent sharp fall in the yuan.
“The stress could continue for a while,” said Gu Weiyong, chief investment officer at hedge fund Ucom Investment Co. “Whether the situation gets better depends on the willingness of the central bank to inject more liquidity into the system.”
Emerging Pain
Emerging stocks .MSCIEF rose marginally but were headed for their biggest monthly fall since January. Currencies hit by the latest onslaught from the dollar were also set to close November with hefty losses.
The Turkish lira TRY= and Mexican peso MXN= have lost around 8 to 9 per cent versus the dollar for their biggest monthly declines since 2008 and 2012 respectively.
Not only riskier assets have suffered. Gold XAU= is on track for its biggest monthly decline since mid 2013, largely pressured by the bets of a series of US interest rate hikes over the next year.
The euro EUR= has fallen over 3 per cent. Euro zone inflation for November came in at 0.6 per cent year-on-year on Wednesday. That was its highest in two years, although still below the European Central Bank’s preferred level of just under 2 per cent.
The ECB meets next week, and expectations are the bank will extend its stimulus program, already at more than 1.5 trillion euros. Euro zone government bond yields nudged lower on Wednesday.
