Oil prices higher again
Oil prices are heading further north at the start of play this week. Brent crude has risen to over $115 per barrel, not far off its high in the conflict to date of almost $120. Asian equity markets are a good deal lower overnight (Japan’s Nikkei is off more than 3%), after US stocks closed well down on Friday. Notably though, US bonds are taking their cue from the weakness in stocks with yields lower overnight. In FX, the yen has bounced off lows of over Y160 against the dollar after Japan’s Finance Ministry said “decisive action may soon be necessary” to address “speculative activity” in currency markets. Elsewhere, EURUSD and GBPUSD are trading at around $1.1500 and $1.3250 respectively this morning, a touch weaker than Friday’s closing levels, while EURGBP is trading at about £0.8680, having firmed a little at the end of last week. For the week ahead, the first-round effects of higher energy prices will be evident in Euro area inflation data for March due tomorrow, while the latest jobs report in the US (also for March) is due on Friday.
Government short-dated bond yields fell on Friday, notwithstanding the continuing rise in oil prices, with US, German and UK yields declining by 5-8bps, while yields further out the curve finished well off their highs of the day. Equity markets were lower again at the end of the week, with the S&P 500 shedding almost 2% and the Stoxx Europe 600 falling by just over 1%. As mentioned, Brent crude oil prices have moved above $115 p/b, while European wholesale gas prices are also heading higher this morning, currently at over EUR 55 per MWh.
ECB member Schnabel says the central bank should not “rush into action” on interest rates in response to the “energy price shock”, noting that it “has time to look at the data and to analyze what is actually happening, whether there’s evidence of second-round effects, how strong the demand environment is and how likely it is that this inflation shock is becoming entrenched in inflation expectations and also in wage growth.”
Looking to the week ahead, as mentioned, Euro area inflation data for March are due tomorrow (Tuesday), with the consensus expecting headline inflation to have risen to 2.6% this month, from 1.9% in February, due to higher energy prices, while the employment report in the US on Friday is expected to show the economy added 60k jobs in March, following a decline of 92k the previous month. Other data due include the European Commission’s Economic Sentiment Indicator (March) for the Euro area today and the ISM manufacturing index (March) and retail sales (February) in the US on Wednesday.