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European stock markets rose on Monday, led by shares of energy producers after the international price of oil hit its highest level in nearly three years.
The Europe Stoxx 600 gained 0.5 percent in early trades while its energy sub-index rose 1.3 percent. The UK FTSE 100 rose 0.6%.
Brent crude, the international benchmark for oil, rose 1.2% to $ 79.12 a barrel, surpassing its last peak in July and reaching its highest level since October 2018. West Texas Intermediate, the US oil marker, gained 1.4% to $ 75.09, its highest price since the summer.
The price of Brent has risen nearly 9% since the start of the month. Opec, the group of oil-producing countries, predicted that demand for the commodity next year would slightly exceed 2019 levels as economies recover from the shocks of the Covid-19 pandemic and the increase vaccination rates spurred a recovery in the travel industry.
U.S. production was also reduced by damage from Hurricane Ida, while a gas shortage in Europe boosted expectations of rising oil demand.
âThe current deficit in supply and demand for oil in the world is bigger than us. [had] expected, âGoldman Sachs analysts commented in a research note, predicting that Brent would hit $ 90 a barrel by the end of the year.
Analysts have warned that a continued rise in oil prices could stoke fears of lingering inflation that could prompt central banks to raise interest rates. This, in turn, could make stock markets vulnerable as businesses and households cut back on spending.
The U.S. Federal Reserve and Bank of England signaled tightening monetary policy last week, while Norway’s central bank became the first in the group of advanced G10 economies to raise rates in the era. of the pandemic.
“Central banks are getting more hawkish” after prioritizing monetary stimulus since March 2020, said Supriya Menon, senior multi-asset strategist at Pictet.
This has added to “a confluence of risks facing markets,” Menon said, including a potential slowdown in the Chinese economy after the Beijing government cracked down on debt and speculation in the all-important country’s real estate sector.
Evergrande, the world’s most indebted real estate developer, missed a payment due on bonds held by offshore investors last week. Fears of a global contagion from Evergrande’s woes and a funding shortage from other Chinese homebuilders hit global stock markets early last week, before fading as investors relied on authorities in Beijing to ease monetary policy and ensure that any housing market downturn would be orderly.
Yet Beijing “has been caught in a conflict to try to reduce credit in the economy to reduce inflation but provide enough for banks to ensure smooth deleveraging for companies, developers and banks at risk.” Jefferies strategist Sean Darby said.
With land sales to homebuilders accounting for over 50% of government revenue and housing accounting for 70-80% of household wealth, Darby added, a drop in Chinese real estate prices “must be the case. one of the main concerns of investors â.
The yield on the 10-year US Treasury bill, which moves inversely to the price of the benchmark government debt, fell 0.02 percentage points to 1.446 percent. That yield briefly hit its highest level since July on Friday after the Federal Reserve said a growing number of its policymakers expected to hike rates in 2022.
In Asia, the Hong Kong Hang Seng Stock Index and Tokyo Nikkei 225 traded flat. The dollar index, which tracks the US currency against six others, was also stable.