Oil prices surged to their highest level since mid-2015 yesterday after the world’s top crude producers agreed to the first joint output cut since 2001, sparking concerns about inflation which pushed up US Treasury yields to a more than two-year peak.
Yields also gained ahead of a two-day policy meeting of the Federal Reserve that starts today, which is expected to raise interest rates for only the second time since the global financial crisis.
Following the weekend agreement between Opec and key non-Opec states that set the markets alive, Brent crude futures were up $1.97 at $56.30 per barrel, having hit a session peak of $57.89, the highest since July 2015.
US crude futures were up $1.97 at $53.47 a barrel.
There was particular surprise as Saudi Arabia, the world’s number one producer, said it may cut its output even more than it had first suggested at an Organisation of Petroleum Exporting Countries meeting just over a week ago.
Energy shares jumped, helping to lift the Dow Jones industrial average and S&P 500 to record intraday highs in early trading, extending their recent string of records.
Benchmark US bond yields topped 2.5 per cent for the first time since October 2014, with analysts saying the Opec agreement boosted reflation expectations.
In late morning trading, US 10-year note prices were down 8/32, while the yield rose to 2.493 per cent from 2.464 per cent late on Friday.
Earlier yesterday, the yield struck 2.528 per cent, its highest since Sept. 29, 2014, according to Reuters data.
In the currency markets, the dollar fell against most major currencies on concerns the Fed could suggest in an upcoming policy statement that the greenback’s gains had gone too far.
Also, a rally in oil prices boosted commodity-linked currencies.
The dollar index, which measures the greenback against a basket of six major currencies, was last down 0.45 per cent at 101.130, easing from an earlier one-and-a-half-week high of 101.780.
The dollar was last down 0.4 per cent against the Canadian dollar at C$1.3122 after hitting C$1.3108, its lowest level against the Canadian dollar since October 20.
Overnight, Chinese stocks suffered their biggest fall in six months as blue chips were knocked by fresh regulatory curbs to rein in insurers’ aggressive stock investments and rising bond yields prompted profit-taking in equities.
The blue-chip CSI300 index fell 2.4 per cent, to 3,409.18 points, while the Shanghai Composite Index lost 2.5 per cent to 3,152.97 points.