Oil prices increased by almost 5% due to an unexpected production cut by OPEC+. But US equity futures fell, and the dollar appreciated with Treasury yields.
The Impact of Oil Production Cut on US Futures
The cartel’s plan to reduce production by over one million barrels per day stunned the markets worldwide on Monday. Investors rushed to make changes out of worry that price pressure would last longer than previously thought, and this panic spread to all asset classes.
The dollar climbed versus currencies in the Group of 10 and extended gains for a second day. The Norwegian krone scarcely changed after an earlier rise in the anticipated gain to the Nordic country from rising oil prices.
The yen’s slide on concerns over Japan’s reliance on oil imports boosted the case for the central bank to keep ultra-easy monetary policies for a little while longer, and confidence among the nation’s major manufacturers fell.
The Treasury Yield Increase
As traders evaluated the announcement from OPEC+, which had previously assured the market that it would maintain supplies stable. The policy-sensitive two-year Treasury yield increased by around eight basis points. It sent back to 4.1%. Treasury yields decreased as the first quarter ended on Friday as investors bet interest rates would soon be slashed.
Futures for the Nasdaq 100 and S&P 500 decreased 0.6% as Friday’s upbeat attitude waned. The Nasdaq 100, heavily weighted in technology, recorded its most significant quarterly increase since June 2020, while the S&P 500 saw its greatest weekly gain since November, up 3.5%.
According to analysts Daan Struyven and Callum Bruce, Goldman Sachs Group Inc., it has increased its projection for Brent crude prices. It predicted that they would reach $95 per barrel by year’s end and $100 in December 2024 due to the output reduction.
Asian energy equities rose, pushing up shares in Australia and Japan. However, semiconductor stocks fell as Beijing started to review the security of imports from Micron Technology Inc.
According to Bloomberg, stocks in Shanghai rose while they reduced in Hong Kong. Caixin manufacturing PMI data showed a worse decline on Monday than anticipated, pointing to some weakening in China’s economic recovery.
Bumpy Start to Monday Trading
There was a rocky start to Monday’s trading, and worries about price increases contrast with last week’s positive mood. It was brought on by the banking sector’s crisis fading and cooling in a crucial US inflation indicator.
The personal consumption expenditures price index, the best inflation indicator used by the Federal Reserve, increased by 0.3% in February. It was less than the average projection. That gave the impression that the Fed might be about to stop raising rates. Although there was a slowdown from January, the PCE price index was still 5% higher than the Fed’s 2% target.
According to Lazard’s Temple, the OPEC+ decrease will increase the risk of more persistent inflation when combined with China’s growing energy consumption.
Other markets saw a decrease in gold and bitcoin. The cryptocurrency experienced a gain of almost 70% in the initial 3 months of this year, marking its biggest quarter since March 2021.
