Oil’s shadow over global markets darkens By Reuters

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets.

What goes down must come up.

And so it is with oil, whose rise on growing fears of a deepening conflict in the Middle East is casting an increasingly dark shadow over global markets as the week draws to a close.

rose more than 5 percent on Thursday for its biggest gain in a year, bringing year-to-date gains to more than 8 percent. If oil holds steady on Friday, it will post its biggest weekly gain since last January.

It’s true that oil’s rebound is coming from a low base and prices are back to where they were just a month ago, but global equities and investor risk appetite are starting to feel the heat.

The price of oil is still about 10% lower than a year ago and has been negative year-on-year since July, a trend that has highlighted growing disinflationary pressures worldwide.

But it was down nearly 30% year-over-year just a few weeks ago. If geopolitical tensions persist and oil continues to rise, investors may have to rethink their inflation outlook.

US Treasury yields are rising and the yield curve is steepening, led by the long end, suggesting long-term inflation concerns may be creeping into investors’ minds.

For Asia, tailwinds from China’s stimulus bonanza last week appear to be fading in the face of headwinds from oil and risk aversion.

Another notable consequence of escalating geopolitical tensions is the bursting of safe-haven demand for the US dollar. It hit a six-week high on Thursday and is on track for its biggest weekly gain since April.

Put the two together – higher Treasury yields and a stronger dollar – and it’s not a particularly attractive backdrop for Asian markets. Especially on a Friday, a day after the index hit its highest level since January 2022.

The Asian economic calendar on Friday is fairly light, with consumer inflation from the Philippines, retail sales data from Singapore, services purchasing managers’ index and manufacturing PMI reports from India and Hong Kong respectively being the main releases.

Global events are likely to set the tone for the market on Friday.

Investors in Asia may also be looking to play it safe ahead of the US non-farm payrolls report for September in Washington on Friday morning. These and the October data will go a long way in determining the size of the expected rate cut in early November.

Prices in the rate futures market are currently equally divided by a discount of 25 or 50 basis points.

Here are the key developments that could provide more direction for Asian markets on Friday:

– Inflation in the Philippines (September)

– India services PMI (September)

– Singapore retail sales (August)