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 A Sunni insurgency in Iraq has driven oil prices as high as $115 a
barrel, threatening to raise costs for businesses around the world.
Prices eased on Thursday LCOc1 but remain close to levels not seen
since the start of 2013.
The surge in oil prices is the latest setback for a global economy
still trying to get back on its feet. In that light, Wednesday's
final estimate of U.S. gross domestic product in the first quarter
was only the latest argument that the Federal Reserve will keep
interest rates at record lows into next year.
Most investment houses are also much more optimistic about the
future. Some responded to the U.S. figures by raising their
estimates of second-quarter growth.
"There's a storm in the rear-view mirror, but much brighter sunshine
ahead," said Kit Juckes, a strategist with French bank Societe
Generale in London. "The storm does matter, though. There is every
reason to be optimistic about upcoming U.S. data, and equally, every
reason to expect policy to remain easy."
European stock markets had retreated after the U.S. figures on
Wednesday, then rebounded .EU. Shares in Barclays BARC.L sank 3
percent, though, after New York's attorney general filed a lawsuit
against the UK lender.
Longer-dated bond yields fell and the dollar suffered as funds were
forced to move out the yield curve. Investors were willing to accept
just 1.26 percent to lend to Germany for 10 years.
U.S. crude CLc1 added 4 cents to $106.54 a barrel, while Brent LCOc1
was unchanged at $114.00. O/R
STABILITY COUNTS
Top of the bill in Europe was the British pound and the impact on it
of a Bank of England report on financial stability.
The report is expected to provide the bank's newly founded Financial
Policy Committee with a vehicle to announce more measures to curb a
booming British housing market, which some worry may be overheating
again, six years after the 2008 crash.
Such "macroprudential" steps, particularly if aggressive, might push
back expectations of a rise in interest rates that have driven
sterling 10 percent higher in a year.
"There’s quite a lot of uncertainty because this is all quite new
for UK assets," said Paul Robson, a currency strategist with RBS in
London.
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"The devil will be in the detail, but the rule of thumb is that the
tighter macroprudential policy becomes, the looser conventional
monetary policy can be – i.e., interest rates might not have to be
raised quite as early or aggressively as they would have otherwise
been."
The prospect of the Fed keeping rates low for longer encouraged
equity investors, though some were cautious in case a key measure of
U.S. inflation due later Thursday surprised on the high side.
The price index for personal consumption expenditures is the Fed's
favoured measure of inflation and looks likely to have reached its
highest since late 2012 in May. ECONUS
Most Asian markets ended in the black with MSCI's broadest index of
Asia-Pacific shares outside Japan .MIAPJ0000PUS up 1.08 percent.
Japan's Nikkei .N225 gained 0.3 percent and Australia .AXJO 1.15
percent.
"You can make the argument that the weaker the number for Q1, the
more that Q2 is going to pay back in terms of growth," said
Alessandro Tentori, global head of rates strategy at Citi.
"This is on the assumption that Q1 has been influenced by emerging
markets weakness and weather related factors."
(Additional reporting by Wayne Cole in Sydney, Jemima Kelly in
London)
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