Asian stock markets extend global rally, oil prices rise after Saudi Arabia pledged output cuts

After a tepid US employment data, most Asian stock markets extended a global rally on Monday amid hopes that the Federal Reserve would hold off on raising interest rates this month. Oil prices rose as a result of Saudi Arabia’s pledge to big output cuts.

Brent crude increased 1 per cent to $76.89 per barrel, giving up some of its earlier gains to as high as $78.73, while US crude advanced 1.2 per cent to $72.61 per barrel, after reaching a session high of $75.06.

Oil prices have lately fallen as fears about China’s faltering economic recovery have grown.

They rose after Saudi Arabia announced it would cut its output to 9 million barrels per day in July, from around 10 million bpd in May, the biggest reduction in years, while a broader OPEC+ deal to limit supply into 2024 also underpinned futures.

“With Saudi Arabia protecting oil prices from sliding too low … we think oil markets are now more prone to a shortfall later this year,” said Vivek Dhar, a mining and energy commodities strategist at Commonwealth Bank of Australia.

“We think Brent futures will rise to $US85/bbl by Q4 2023 even with a tepid demand recovery in China factored in.”

On Monday, MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.2 per cent, while Japan’s Nikkei surged 1.7 per cent to stand above 32,000 for the first time since July 1990.

Hong Kong’s Hang Seng index rose 0.6 per cent while China’s bluechips underperformed with a drop of 0.4 per cent.

S&P 500 futures dipped 0.1 per cent and Nasdaq futures dropped 0.3 per cent in Asian hours, after a strong rally on Friday, driven by a mixed US jobs report, a resolution to the debt-ceiling issue and the prospect of a US rate pause this month.

Data on Friday showed US economy added 339,000 jobs last month, higher than most estimates, but moderating wage growth and rising jobless rate led markets to continue to bet on no change in Fed rates this month, with a 75 per cent chance priced in for that, according to CME FedWatch tool.

However, there is about a 70 per cent probability that Fed funds rates would reach 5.25-5.5 per cent or beyond at the policy meeting in July and little chance of a rate cut by the end of this year.

Treasury yields continued to climb on Monday. Yields on US two-year Treasuries rose 4 basis points to 4.5449 per cent, on top of a surge of 16.2 bp on Friday, and 10-year yields also climbed 3 bps to 3.7215 per cent, after a rise of 8 bps on Friday.

Fitch Ratings said the United States’ “AAA” credit rating would remain on negative watch, despite the debt agreement.

The US dollar remained elevated on Monday at 104.14 against its major peers, after gaining 0.5 per cent on Friday on the jobs report. The greenback also rose 0.16 per cent on the Japanese yen to 140.17 while the euro eased 0.1 per cent to $0.10698.

Central banks from Australia and Canada will meet this week. Markets see a sizeable chance – about 40 per cent – that the RBA could surprise with a quarter-point hike on Tuesday after a minimum wages decision that some economists feared could further stoke inflationary pressures.

The Bank of Canada will meet on Wednesday. A majority of economists polled by Reuters expect the BOC to keep interest rates on hold at 4.5 per cent for the rest of the year although the risk of one more rate hike remains high.

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