World shares rose on Monday, led by sharp gains in energy shares as crude oil prices soared to three-year highs of almost $80 a barrel while European stocks firmed after Germany’s election results ruled out chances of a purely left-wing coalition.
Stock markets benefited too from an ostensible easing in Sino-US tensions and Chinese authorities’ decision to pump more cash into financial markets to potentially offset the fallout from embattled real estate firm China Evergrande Group.
German shares jumped 1.1 per cent, while a pan-European equity index was up half a percent.
Gains were led by the energy sector, which rose almost 2 per cent while Wall Street too was tipped for a firmer session, with S&P 500 futures up 0.3 per cent.
After Sunday’s election, Germany now faces months of negotiations to form a coalition government, with three parties needing to team up to clear the threshold of 50 per cent of Bundestag seats. The likely outcome may be a coalition of the centre-left Social Democrats with the Greens and the liberal FDP.
“One key takeaway for markets should clear: a fully fledged centre-left coalition ... does not have a majority in parliament,” analysts at RBC Capital told clients.
“This would have been the option that would probably have brought about the largest shift in policies in Germany and in the German stance towards European politics - specifically as regards fiscal expansion. This option is now safely off the table.”
German 10-year government borrowing costs briefly fell in early trade before heading back up to rise to -0.217 , its highest in almost three months.
Increasing focus is on energy markets where oil futures have climbed around $9 a barrel over September. Brent crude traded on Monday at $79.07 a barrel, while US crude rose 97 cents to $74.95.
Shares in European oil majors such as BP, Shell and Total rose as much as 2.5 per cent
Coming on top of this year’s 300 per cent rise in European gas prices, the price surges threaten to further inflame inflation expectations.
Nor is the issue confined to Europe, with a Chinese power crunch triggering a contraction in industry and pressuring the economic outlook.
Goldman Sachs forecast Brent to hit $90 per barrel by year-end, adding “the current global oil supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above-consensus forecast”.
Such an increase could stoke speculation that global inflation will prove longer-lasting than anticipated and hasten the end of super-cheap money, favouring reflation trades in bank and energy stocks while bruising bond prices.
Investors are therefore repositioning portfolios; US 10-year Treasury bond yields, a key determinant of global capital costs, jumped 9 basis points last week while industrials-heavy US Dow Jones index outperformed the Nasdaq index of tech stocks.
U.S 10-year Treasury yields rose to 1.473 per cent rising to their highest in almost three months.
The rise in US yields, especially on an inflation-adjusted basis, is also lifting the dollar which rose 0.15 per cent against a basket of currencies inching towards the one-month high hit last week.
Earlier, Chinese blue chips gained 0.5 per cent, shrugging off problems at Evergrande, which faces another bond coupon payment this week. The boost came thanks to another cash injection from the central bank and hopes the release of Huawei executive Meng Wanzhou would reset ties with the West.
However, Hong Kong-listed shares in Evergrande’s electric car unit plunged as much as 26 per cent after it warned it urgently needed a swift injection of cash.
Focus will shift later in the day to US fiscal policy -- the House of Representatives is due to vote on a $1 trillion infrastructure bill, while a September 30th deadline on funding federal agencies could force the second partial government shutdown in three years. – Reuters
