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Markets

Surging oil prices lift material, energy stocks on Wall St

  • US stock futures pare losses, Nikkei aided by yen drop
  • Oil leads energy complex higher, stokes inflation risk
  • Dollar reaches highest on yen since late 2018
Published October 11, 2021

NEW YORK/LONDON: Oil prices surged again on Monday to multi-year peaks, giving a fillip to materials and energy shares and helping US stocks to reverse early declines as investors looked past stagflation risks for now.

US crude jumped 2.28% to $81.16 per barrel, a level not seen since late 2014, and Brent rallied 1.9% to $83.98.

Higher vaccination rates against the coronavirus pandemic have supported a revival in economic activity, helping Brent prices to gain for five weeks and US crude for seven.

"Oil prices are likely to continue climbing in the short term," said Commerzbank analyst Carsten Fritsch.

Red-hot energy prices lifted basic materials and energy stocks in the S&P 500 Index, helping Wall Street to shed early losses.

The Dow Jones Industrial Average rose 152.82 points, or 0.44%, the S&P 500 gained 18.99 points, or 0.43%, and the Nasdaq Composite added 64.51 points, or 0.44%.

Wall Street rises on Big Tech strength

The pan-European STOXX 600 index lost 0.08% and MSCI's gauge of stocks across the globe gained 0.41%.

However, some analysts warned that runaway energy prices would likely fan inflation pressure and lead central banks to tighten monetary policy, which could dampen economic growth.

"Higher energy prices, shortages will inevitably make their way through global value chains in the form of rising prices and potentially shortages of industrial and consumer goods," OANDA analyst Jeffrey Halley said.

"All of this makes the constant blathering from central bankers around the world about inflation being 'transitory' ring more and more hollow."

Analysts at BofA warned that the global inflationary pulse would be aggravated by energy costs with oil potentially topping $100 a barrel amid limited supply and strong re-opening demand.

The winners in such a scenario would be real assets, real estate, commodities, volatility, cash and emerging markets, while bonds, credit and stocks would be affected negatively.

BofA recommended commodities as a hedge and noted resources accounted for 20-25% of the main equity indexes in Britain, Australia and Canada; 20% in emerging markets; 10% in the euro zone, and only 5% in the United States, China and Japan.

Bets that major central banks could tighten monetary policy sooner rather than later pushed up bond yields and lifted the dollar to a near three-year peak against the Japanese yen.

The Japanese yen weakened 0.89% versus the greenback at 113.20 per dollar, while the dollar index rose 0.003%.

The prospect of accelerating inflation and tighter monetary policy lifted bond yields.

Benchmark 10-year yield climbed to 1.6118% from 1.605% late on Friday. Yield on the 2-year note also rose to 0.3198% from 0.318%.

Gold prices were little changed. Spot gold added 0.1% to $1,757.77 an ounce. US gold futures fell 0.02% to $1,755.90 an ounce.

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