Stocks splutter as oil races to near six-month high

LONDON (Reuters) – Oil prices jumped to near six-month highs on Tuesday as the United States tightened sanctions on Iran, giving energy company shares their best day since January but doing surprisingly little for the main petrocurrencies.

News that the U.S. had told buyers of Iranian oil to stop purchases by May 1 or face sanctions was pushing Brent toward $75 a barrel and made for a lively return from the four-day Easter break for Europe’s main markets.

Oil and gas shares jumped more than 2 percent though the threat of higher energy costs hit almost every other sector as well as bonds as investors cast a wary eye at rising inflation expectations.

Wall Street was looking set for subdued start too with traders looking through a fresh batch of earnings from Coca-Cola, Twitter and Harley Davidson as President Donald Trump also threatened Europe with trade tariffs again.

Foreign-exchange market volatility was still in short supply but there were a few stirrings.

The Swiss franc burrowed to a new 16-month low as the SNB’s chief talked about even more negative interest rates, while two of the usual beneficiaries of higher oil prices, the Canadian dollar and Norwegian crown, both struggled despite the crude rally and a flat U.S. dollar.

“Oil is interesting, but the interesting thing for FX is that we are not getting the usual feed-through in the petrocurrencies,” said Saxo bank’s head of FX strategy, John Hardy, adding that might be caused by questions about Chinese stimulus.

Both the Canadian dollar and the crown had gained on Monday, and the Russian rouble, another petrocurrency, hit its highest against the euro in more than a year its highest against the dollar in a month.

Overnight, MSCI’s index of Asia-Pacific shares ended 0.1 percent higher and Japan’s Nikkei closed up 0.2 percent. Oil and gas gains were offset by losses for airlines and other transport shares facing higher fuel costs.

The White House said after its Iran move it was working with Saudi Arabia and the United Arab Emirates to ensure oil markets were “adequately supplied,” but traders had already been worried about tight supplies.

Oil prices are up nearly 50 percent since late December, and before the re-imposition of sanctions last year Iran was the fourth-largest producer among the Organization of the Petroleum Exporting Countries, at around 3 million barrels per day.

Oil prices are “not so high that it crushes manufacturing by putting energy-price inputs up, but it is producing a nice boost to oil-producing nations,” said Robert Carnell, Singapore-based chief economist and head of research for Asia Pacific at ING.

Carnell sees Brent crude’s sweet spot at between $65 and $75 per barrel: “Above this, you may see some negative impact.”

SRI LANKA
Sri Lanka’s stock market and government bonds both fell as trading resumed after bombings that killed more than 300 people on Sunday. Tourism is likely to collapse, which would deal a serious blow to the island’s economy and financial markets.

The International Monetary Fund last month extended a $1.5 billion loan to Sri Lanka into 2020, a key step in keeping foreign investors involved in what so far this year has been a top-performing frontier debt market.

In China, major benchmarks had dipped in and out of negative territory amid concern that Beijing will slow the pace of policy easing after unexpectedly strong first-quarter economic data last week.

China’s blue-chip stocks have surged over 30 percent so far this year on expectations of more stimulus and hopes Beijing and Washington will reach an agreement to end their nine-month trade dispute.

“We’ve had a fantastic run in Chinese equities year-to-date. Some profit taking is completely normal. I don’t think China is changing its policy that quickly,” said Stefan Hofer, chief investment strategist at LGT Bank Asia in Hong Kong.

Wall Street hasn’t done badly either, with the S&P 500, Dow Jones and Nasdaq galloping up roughly 16 percent, 21 percent and 14 percent this year respectively.

About a third of the S&P 500 companies including planemaker Boeing and social media giant Facebook are scheduled to report this week, making it the busiest period this reporting season.

Profits at S&P companies are expected to have dropped 1.7 percent, in what could be the first earnings contraction since 2016. However, the forecasts have improved slightly since the start of April.