Trading opened mainly lower in the US on Monday with two of its main indices falling as a spike in oil prices added to fears of higher inflation and a looming recession.
FTSE 100 and European stocks
Across the pond, European stocks and the FTSE 100 traded mostly higher on Monday with oil stocks gaining ground after top crude producers announced an output cut that will exceed 1 million barrels a day.
Oil stocks surge
Oil majors Shell (SHEL.L) and BP (BP.L) gained 4.46% and 4.31% respectively, as crude prices gained after Saudi Arabia, Russia and key OPEC+ allies said they planned to make more than 1.6 million barrels per day of voluntary supply cuts.
Read more: Trending tickers: BP | SHELL | HSBC | IAG
The bulk of the reductions will start in May and last until the end of the year.
“Shell and BP are at the top of the index, each up over 4% after OPEC+ unexpectedly voluntarily reduced output to boost oil prices,” Victoria Scholar, head of investment at Interactive Investor, said.
US and Asia
Back in the US, Monday also brought investors two key readings on the manufacturing sector with data from both S&P Global and Institute for Supply Management showing a contraction in activity during March.
The ISM index dropped for a fifth-straight month, reaching a level of 46.3 — the lowest since May 2020. Any reading below 50 indicates contraction, while readings above 50 indicate expansion in the sector.
Meanwhile, in early Asia trade, Tokyo’s Nikkei 225 (^N225) rose 0.52% to 28,188 points, while the Hang Seng (^HSI) in Hong Kong lost 0.15% to 20,370. In mainland China, the Shanghai Composite (000001.SS) gained 0.76% to 3,297 points.
International oil benchmark Brent crude (BZ=F) rose 5.88% to $80.12 per barrel, while US West Texas Intermediate (CL=F) climbed 8% to $81.69 a barrel — increases that were expected following the supply cut announcement on 2 April.
“Saudi Arabia and other OPEC+ oil producers announced further production cuts of approximately 1.15 million barrels per day, which commence in May. This was a surprising move to some,” Fernando C Hernandez, principal at Hernandez Analytica, said.
“However, it is to be expected as OPEC+ (Russia and OPEC) joined forces in 2016 to stabilise oil prices, in the aftermath of OPEC declaring an oil price war with the US’ frackers in 2014, causing oil prices to crash. Since then OPEC+ has repeatedly boosted oil prices, so the announcement is not entirely surprising.”
Scholar said: “While OPEC+ has intervened to limit supply and support prices, the demand outlook remains uncertain. On the one hand, the opening up of China’s economy is releasing a wave of pent-up demand.
“However, that tailwind is likely to be tempered by weaker demand outside China as the global economy cools. Plus, demand could also soften if there are further fears of contagion from the banking sector volatility.”
Hawkish comments from the Bank of England and better-than-expected GDP figures released on Friday has supported the pound.