Oil rallies on Opec deal to cut output; Dow, S&P hit record highs

The oil cartel agreed to curb output for the first time in eight years. And this time, even non-Opec producers like Russia are pitching in.
Iran's Oil Minister Bijan Zangeneh attends an Opec meeting in Vienna, Austria, on Nov 30, 2016.
Iran's Oil Minister Bijan Zangeneh attends an Opec meeting in Vienna, Austria, on Nov 30, 2016.PHOTO: AFP

NEW YORK (REUTERS) - Oil prices jumped around 9 per cent on Wednesday (Nov 30) as Opec members sealed a deal to cut production, while upbeat US economic data and comments from the US Treasury Secretary nominee triggered a bond market sell-off, marking a miserable November for Treasuries.

Higher crude prices bolstered shares of energy producers and stock prices around the world, with the Dow and S&P 500 stock indexes touching record highs.

An improving view on global growth, led by the United States on hopes of tax cuts and federal spending under a Trump administration, rekindled the dollar’s advance toward a near 14-year peak.

“Everything seems to be coming together for more growth and risk appetite,” said Larry Milstein, head of agency and government trading at R.W. Pressprich & Co. in New York.

Gold lost its safe-haven luster as investor confidence strengthened, posting its worst monthly loss since mid-2013.

The Organisation of the Petroleum Exporting Countries has agreed its first output limiting deal in eight years in an effort to deal with a global supply overhang, an Opec source told Reuters as the debates continued in Vienna on the size of each member’s cuts.

Brent crude settled up US$4.09, or 8.82 per cent, at US$50.47 a barrel. US crude settled up US$4.21 or 9.31 per cent at US$49.44.

 

The rally in energy shares helped lift the Dow and the S&P 500 to record intraday highs before retreating in late trading. The blue-chip US stock indexes were also briefly boosted by bank stocks on bets of loosening of regulation under Trump and a Republican-controlled Congress.

The Dow Jones industrial average ended up 1.98 points, or 0.01 per cent, to 19,123.58, the S&P 500 closed down 5.85 points, or 0.27 per cent, to 2,198.81 and the Nasdaq Composite finished down 56.24 points, or 1.05 per cent, to 5,323.68.

For November, the Dow gained 5.4 per cent, the S&P rose 3.4 per cent and the Nasdaq increased 2.6 per cent.

European stocks also advanced on a jump in oil companies . But regional banks struggled after news Royal Bank of Scotland failed a Bank of England stress test and Italian lenders fell before a referendum on the country’s political system on Sunday.

Europe’s broad FTSEurofirst 300 index rose 0.53 per cent at 1,350.85, raising its November gain to 0.9 per cent.

The MSCI world equity index, which tracks shares in 45 nations, fell 0.50 point or 0.12 per cent, to 413.43, reducing its monthly gain to 0.6 per cent.

The jump in oil prices, together with stronger-than-expected data on US private job growth and regional manufacturing on Wednesday, ignited a wave of selling in bonds, pushing benchmark U.S. yields towards their highest since July 2015.

An aversion to owning long-dated US government bonds grew after US Treasury nominee Steven Mnuchin told CNBC television: “We’ll look at potentially extending maturity of the debt because eventually we’re going to have higher interest rates.”

US 10-year Treasury note yield rose 9 basis points to 2.39 per cent, a tad below last week’s 2.42 per cent that was the highest since July 2015.

The German 10-year Bund yield was 4 basis points higher at 0.26 per cent, while the Japanese 10-year yield edged up 1 basis point at 0.03 per cent.

Bonds across the world lost about US$2 trillion in market value since the Nov 8 US election before they recovered a bit this week, according to Bank of America Merrill Lynch data.

Rising US yields and upbeat domestic data pushed the dollar index up 0.59 per cent at 101.53, which was short of the near 14-year high of 102.05 set last week. It was up about 3 per cent for a second month in November.

Meanwhile, gold lost 8.2 per cent in November for its biggest monthly decline since June 2013, largely pressured by the bets of a series of US interest rate hikes over the next year as US growth seemed to accelerating.

Spot gold prices fell US$16.06 or 1.35 per cent, to US$1,172.28 an ounce.