London: Brent crude oil topped $50 a barrel for the first time in nearly seven months on Thursday, lifting commodity and energy-related shares in Europe and Asia, though worries about US interest rates and signs of slowdown in China limited gains.
Oil’s rise took it to levels more than 80 per cent above January’s 12-year lows and was fuelled in part by a weaker dollar, which fell against the Japanese yen.
European shares edged higher, led by the basic resources and oil and gas sectors. The pan-European FTSEurofirst 300 index rose 0.1 per cent, pushing on from a four-week high hit on Wednesday. The STOXX 600 basic resources index rose 2.6 per cent. Oil and gas added 0.4 per cent.
Wall Street looked set to open with modest gains, according to index futures.
Within Europe, gains of 0.5 per cent in Germany’s DAX index and 0.4 per cent in France’s CAC 40 were offset by losses of 0.6 per cent in Spain’s IBEX and 0.3 per cent in Italy’s FTSE MIB index.
Japan’s Nikkei rose 0.1 per cent, giving up earlier gains as the yen firmed, while MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.4 per cent.
Chinese shares fell more than 1 per cent at one point, with the CSI300 index touching its lowest since March 11 after data on Thursday showed profits at state-owned firms fell 8.4 per cent year-on-year in the first four months of 2016, while debts rose 18 per cent. However, a late rally saw the index close 0.2 per cent higher.
Brent, the international benchmark oil price, rose as high as $50.35 a barrel, its highest since early November, in the wake of data showing a sharper-than-expected fall in US crude stocks last week.
US crude last traded at $49.90, up 34 cents.
“Geopolitical issues in West Africa and the Middle East, supply outages, increased demand and maybe a touch of a weaker dollar have all helped push prices higher,” said Jonathan Barratt, chief investment officer at Sydney’s Ayers Alliance.
He added, however, that the rally would not last as the higher prices would bring US shale oil back on to the market.
In currency markets, the yen rose 0.2 per cent to 110 per dollar and the euro was up 0.3 per cent at $1.1182.
“Stuck in a corridor is a good word for the yen at the moment,” said Geoffrey Yu, a strategist with the UBS in London.
“For Japan the question is what will we see next from them to ensure that the yen can stay weak.” The greenback hit a two-month high against a basket of currencies on Wednesday, and is on a roll after minutes of the Federal Reserve’s latest policy meeting and comments from Fed officials hinted that an interest rate rise could be imminent.
The cost of hedging against big swings in sterling over the next month hit seven-year highs on Thursday, according to options set to mature just after Britain’s June 23 referendum on European Union membership.
Rate outlook clues
Investors are looking to a speech by Fed Chair Janet Yellen on Friday for more clues to the rate outlook.
Yields on two-year US Treasuries hit 10-week highs around 0.94 per cent on Wednesday. They last stood at 0.91 per cent down 1 basis point on the day.
German 10-year yields, the benchmark for Eurozone borrowing costs, rose about 2 bps to 0.17 per cent.
The market is already turning to next Thursday’s European Central Bank policy meeting, at which it will unveil new growth and inflation forecasts.
Higher oil prices have helped lift a gauge of long-term inflation expectations often cited by the ECB – the five-year break even rate – above 1.5 per cent, though this remains below the ECB’s inflation target of near 2 per cent.
