(Bloomberg) — US equity futures slipped and the dollar climbed with Treasury yields as the surprise production cut from OPEC+ sent oil prices about 6% higher.
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The group’s decision to reduce output by more than 1 million barrels a day is a jolt to markets that had been looking to a near-term peak in inflationary pressure. The group had previously given assurances that it would hold supply steady.
The dollar strengthened against most Group-of-10 currencies, with the exception of Norwegian krone, with the Scandinavian country standing to benefit from higher energy prices.
The policy-sensitive two-year Treasury yield jumped six basis points to 4.09%. Treasuries had ended a quarter of wild swings on Friday with yields falling as investors wagered that peak interest rates were near.
Contracts for the S&P 500 fell 0.3% and those for the Nasdaq 100 declined 0.7% as positive sentiment from Friday ebbed. The S&P 500 had jumped 3.5% last week, the most since November, while the tech-heavy Nasdaq 100 notched its biggest quarterly gain since June 2020. Shares still opened higher in Japan and Australia.
“For equity investors, this could be a rude awakening, as markets imply a Goldilocks outlook of reduced discount rates but no recession,” said Ronald Temple, chief market strategist at Lazard Ltd. in New York. “The OPEC+ production cut is another reminder that the inflation genie is not back in the bottle.”
The bumpy open to Monday trading and fears of rising prices contrasts with the upbeat tone last week that came with turmoil in the banking sector receding and cooling in a key measure of US inflation.
Excluding food and energy, the Federal Reserve’s preferred inflation gauge — the personal consumption expenditures price index — rose 0.3% in February, slightly below the median estimate. That suggested the Fed may be close to ending its rate-hiking campaign. The PCE price index was up 5% from a year earlier, a deceleration from January but far higher than the Fed’s 2% goal.
The OPEC+ cut combines with increased energy demand from China to raise the danger of more persistent inflation, said Lazard’s Temple. “It also likely limits the latitude central banks might have to relax monetary policy even if the economy slows,” he added.
“We’re now probably about to enter a very short-term down leg again,” Paul Gambles, MBMG Group co-founder and managing partner, said on Bloomberg Television. “We’ve had a year of pretty irresponsible policy guides and all the damage that they’ve done is now starting to show up.”
Elsewhere, gold declined, while Bitcoin steadied. The cryptocurrency notched its best quarter since March 2021 with a gain of about 70% in the first three months of this year.
Key events this week:
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China Caixin manufacturing PMI, Monday
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Eurozone S&P Global Eurozone Manufacturing PMI, Monday
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US construction spending, ISM manufacturing, light vehicle sales, Monday
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Eurozone PPI, Tuesday
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US factory orders, US durable goods, Tuesday
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Australia rate decision, Tuesday
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Cleveland Fed President Loretta Mester speaks, Tuesday
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Eurozone S&P Global Eurozone Services PMI, Wednesday
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US trade, Wednesday
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UBS annual general meeting, Wednesday
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US initial jobless claims, Thursday
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St. Louis Fed President James Bullard speaks, Thursday
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US unemployment, nonfarm payrolls, Friday
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Good Friday. Many markets closed, including US stock and bond markets
Some of the main moves in markets:
Stocks
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S&P 500 futures fell 0.3% as of 9:15 a.m. Tokyo time. The S&P 500 rose 1.4% Friday
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Nasdaq 100 futures fell 0.7%. The Nasdaq 100 rose 1.7% Friday
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Japan’s Topix index rose 0.4%
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Australia’s S&P/ASX 200 Index rose 0.6%
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Hong Kong’s Hang Seng futures fell 0.6%
Currencies
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The Bloomberg Dollar Spot Index rose 0.3%
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The euro fell 0.3% to $1.0805
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The Japanese yen fell 0.1% to 133.04 per dollar
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The offshore yuan fell 0.2% to 6.8820 per dollar
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The Australian dollar fell 0.4% to $0.6659
Cryptocurrencies
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Bitcoin rose 0.3% to $28,168.17
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Ether rose 0.3% to $1,794.23
Bonds
Commodities
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West Texas Intermediate crude rose 5.9% to $80.16 a barrel
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Spot gold fell 0.5% to $1,960.21 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Matthew Burgess.
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