(Bloomberg) -- Investors signaled belief in a fledgling equity rally as US futures erased a Wednesday decline and an index of Asian stocks traded higher, suggesting that markets are downplaying the impact of rising oil prices.
Stocks in Japan and South Korea rose while Australian shares fluctuated and Hong Kong equities edged lower following their best day in six months. The gain in contracts for the S&P 500 reversed a small decline in the index on Wednesday. European futures advanced. The bullish sentiment weakened the dollar after its biggest jump in a week on Wednesday. The pound gained ground even after Fitch Ratings downgraded its UK outlook to negative.
The action appeared to mark a rethink on the effects of Wednesday’s decision by OPEC+ to reduce daily oil production by two million barrels. The US oil benchmark jumped to a three-week high. The White House warned about negative effects on a global economy weathering curbs on Russian imports and said the US would release 10 million barrels from strategic reserves.
Upward pressure on energy prices threatens to prolong above-target inflation, dashing hopes that central banks may soon relent from aggressive interest rate increases. Investors will remain keenly focused on US jobs data on Friday for further clarity.
“An adjustment higher in oil prices could have an impact on the inflation numbers,” said Rubeela Farooqi, chief US economist for High Frequency Economics, undoing a gentle decline over the past two months. “Inflation measures could reverse in October, if prices continue to rise.”
Goldman Sachs Group Inc. increased its fourth-quarter price target for Brent crude oil to $110, implying a jump of almost a fifth from today’s level.
“We are here sitting at near record low inventories. Demand will increase this winter because a lack of gas will drive more oil demand and now we have a loss in supply from OPEC and likely from Russia,” said Damien Courvalin, head of energy research for Goldman.
Federal Reserve Bank of Atlanta President Raphael Bostic said on Wednesday he favored raising interest rates to 4.5% by the end of the year, implying a further 125 basis points of tightening. His San Francisco counterpart Mary Daly warned against expecting any rate cuts in 2023.
“Inflation fears may get assuaged but then they turn into growth fears and that turns into a problem for corporate earnings,” said Emily Roland, co-chief investment strategist for John Hancock Investment Management, in an interview with Bloomberg TV. “Even if rates do fall it’s probably too early to call the all-clear on stocks.”
Key events this week:
- Eurozone retail sales, Thursday
- US initial jobless claims, Thursday
- Fed’s Charles Evans, Lisa Cook, Loretta Mester speak at events, Thursday
- US unemployment, wholesale inventories, nonfarm payrolls, Friday
- BOE Deputy Governor Dave Ramsden speaks at event, Friday
- Fed’s John Williams speaks at event, Friday
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Some of the main moves in markets:
Stocks
- S&P 500 futures added 0.4% of 11.16 a.m. in Tokyo. The S&P 500 fell 0.2%
- Nasdaq 100 futures rose 0.5%. The Nasdaq 100 fell 0.1%
- Japan’s Topix index climbed 0.8%
- Australia’s S&P/ASX 200 Index fell 0.1%
- South Korea’s Kospi index jumped 1.2%
- Hong Kong’s Hang Seng Index fell 0.6%
- Euro Stoxx 50 futures jumped 1.3%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro strengthened 0.3% to $0.9910
- The British pound gained 0.2% to $1.1352
- The Japanese yen was flat at 144.67 per dollar
Cryptocurrencies
- Bitcoin gained 1.8% to $20,335.36
- Ether added 2.1% to $1,373.07
Bonds
- The yield on 10-year Treasuries fell six basis points to 3.75%
- Australia’s 10-year yield gained 17 basis points to 3.80%
Commodities
- West Texas Intermediate crude rose 0.2% to $87.92 a barrel
- Gold futures traded 0.3% higher at $1,720.76 an ounce