Stock Market

Asian Stocks Mostly Rise as Saudi Arabia Implements Significant Output Cuts; Oil Prices Surge

Sydney (Reuters) – The majority of Asian share markets experienced gains on Monday, driven by optimism that the Federal Reserve would pause its rate hikes following a mixed U.S. jobs report. Meanwhile, oil prices saw a significant jump after Saudi Arabia announced substantial output cuts.

However, the optimistic sentiment faced some resistance in Europe, as pan-regional Euro Stoxx 50 futures declined by 0.2%. S&P 500 futures dipped by 0.1%, and Nasdaq futures dropped by 0.4%.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan remained mostly flat for the day, as gains in some markets were offset by losses in Chinese shares.

Japan’s Nikkei surged by 2.1%, reaching a level above 32,000 for the first time since July 1990.

Hong Kong’s Hang Seng index rose by 0.4%, while China’s blue-chip index fell by 0.7%.

Morgan Stanley (NYSE: MS) lowered their index targets for offshore-centric Chinese indices, citing a delayed earnings recovery, a weaker currency outlook, and geopolitical uncertainties.

Nevertheless, Laura Wang, MS equity strategist, believes that China’s recent weaker macro data signifies an uneven and unbalanced recovery rather than the end of its up-cycle.

“We also expect policy makers to implement easing measures around late June/early July, and we anticipate a consumption-led recovery to broaden out in the second half of the year as the job market and income levels recover,” said Wang.

On Monday, oil prices, which have been under pressure due to concerns about China’s slowing economy, rose following Saudi Arabia’s announcement that it would reduce its output to 9 million barrels per day in July, down from around 10 million bpd in May. This reduction marks the largest in years [O/R].

Brent oil climbed by 1.2% to $77.07 a barrel by 0600 GMT, relinquishing some of its earlier gains that reached as high as $78.73. Similarly, U.S. crude increased by 1.3% to $72.69 a barrel after hitting a session high of $75.06.

“With Saudi Arabia protecting oil prices from sliding too low… we believe that oil markets are now more susceptible to a shortfall later this year,” stated Vivek Dhar, a mining and energy commodities strategist at Commonwealth Bank of Australia (OTC: CMWAY).

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

Data from Friday revealed that the U.S. economy added 339,000 jobs last month, surpassing most estimates. However, moderating wage growth and an increasing jobless rate have led the markets to expect no change in Fed rates this month, with a 75% chance already priced in, according to the CME FedWatch tool.

Nonetheless, there is approximately a 70% probability that Fed funds rates could reach 5.25-5.5% or beyond during the policy meeting in July if U.S. inflation remains elevated. Conversely, the markets now perceive minimal likelihood of a rate cut by the end of this year.

Treasury yields continued to rise on Monday, with yields on U.S. two-year Treasuries increasing by 3 basis points to 4.5410%, following a surge of 16.2 bp on Friday. Additionally, 10-year yields climbed by 3 bps to 3.7216% after a rise of 8 bps on Friday.

Fitch Ratings stated that despite the debt agreement, the United States’ “AAA” credit

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