European Shares Set To Dive As Oil Rally Spurs Inflation, Growth Concerns

European stocks are seen opening deep in the red on Monday as investors weigh the potential impact of soaring oil prices and higher bond yields on inflation and economic growth.

WTI crude futures traded up over 20 percent near $110 a barrel following production cuts by major Middle Eastern producers—including Kuwait, Iran, and the United Arab Emirates—after the closure of the Strait of Hormuz.

Brent crude futures were up more than 24 percent at $115 a barrel, prompting investors to price in higher inflation and a deteriorating economic outlook.

Global bond markets tumbled, with yields on 10-year U.S. notes rising 8 basis points to 4.208 percent, the 2-year Treasury yield climbing by 8 bps to 3.631 percent, and the 30-year Treasury yield surging to 4.822 percent, reflecting anxiety about the global economy.

Australia’s policy-sensitive three-year yield climbed to its highest level since 2011, while German bund futures slid to an almost 15-year low amid expectations that sustained price pressures will force central banks to keep policy tight.

With the Strait of Hormuz effectively shut and Iranian strikes spreading across the Gulf, Qatar’s energy minister has warned the price of a barrel of oil could surge to more than $150 a barrel.

Goldman Sachs warned in a recent investor note that international oil prices could reach $150 a barrel by the end of the month if crude oil flows through the Strait of Hormuz do not improve.

Iran fired its first missiles towards Israel today following the appointment of Ayatollah Mojtaba Khamenei as the Islamic Republic’s new supreme leader.

On Sunday, Iran pressed attacks on neighboring Gulf states, with Qatar, Kuwait, and Bahrain all reporting missile and drone strikes.

The U.S. reportedly ordered diplomats and embassy staff to leave Saudi Arabia after drone attacks hit U.S. embassies in Riyadh.

According to U.S. President Donald Trump, attacks on Iran would continue “until they surrender or, more likely, completely collapse.”

In economic news, U.S. reports on consumer prices, durable goods orders and consumer sentiment may attract attention this week amid lingering concerns affecting Fed decisions.

Federal Reserve Bank of Cleveland President Beth Hammack said on Friday that rates should be on hold for quite some time and if price pressures do not retreat, the Fed may have to weigh tighter monetary policy to ensure price pressures retreat to 2 percent.

Closer home, German factory orders data and Eurozone Sentix Investor Confidence survey results will be in the spotlight later today.

Asian markets were sharply lower, with benchmark indexes in Australia, South Korea and Japan plummeting 3-7 percent.

China reported mixed inflation data, with the consumer-price growth accelerating to the quickest in over three years in February while factory deflation moderated again.

The dollar index gained on safe-haven demand as investors factor in heightened inflation risk and prolonged energy disruption.

Gold traded down nearly 1 percent at $5,120 an ounce due to the stronger dollar.

U.S. stocks fell sharply on Friday, adding to the losses posted in the previous session as U.S. crude oil prices spiked 12 percent to more than &90 a barrel, stirring inflation and interest-rate concerns.

Investors also reacted to signs of a weakening U.S. jobs market, with the economy unexpectedly losing 92,000 jobs in February and the unemployment rate edging up to 4.4 percent from 4.3 percent amid a strike by healthcare workers and harsh winter weather.

The Dow and the tech-heavy Nasdaq Composite fell 1 percent and 1.6 percent, respectively to hit their lowest closing levels in over three months while the S&P 500 gave up 1.3 percent to reach a two-month closing low.

European stocks reversed course to end lower on Friday due to uncertainty around the expanding Middle East conflict and concerns about an energy supply shock exacerbating inflation.

The pan-European Stoxx 600 closed 1 percent lower, with selling seen across the board. The German DAX shed 0.9 percent, France’s CAC 40 dipped 0.7 percent and the U.K.’s FTSE 100 lost 1.2 percent.

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