Oil hits six-week high
after OPEC deal, sterling jumps
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[December 01, 2016]
By Jamie McGeever
LONDON
(Reuters) - Oil swept to a six-week high on Thursday after OPEC agreed
to cut crude output to help clear a glut, while sterling hit a
three-month peak after traders interpreted comments from a senior UK
official as a crack in the government's "hard Brexit" line.
Global bond yields rose on prospects that resulting inflationary
pressures from oil's surge will lead to higher interest rates, with the
benchmark 10-year U.S. Treasury yield matching November's 16-month high.
European stocks dived, shrugging off the bounce in Asian shares and
following the S&P 500's fall the previous day instead. U.S. futures
pointed to another slight decline at the open on Wall Street <ESc1>.
The Organization of the Petroleum Exporting Countries on Wednesday
agreed to its first output cut since 2008, finally taking action after
global oil prices fell by more than half in the last two years.
Non-OPEC Russia will also join output reductions for the first time in
15 years.
U.S. crude oil <CLc1> added to overnight gains of 9 percent to reach
$50.00 a barrel for the first time since October. Brent crude <LCOc1>,
which soared $4 overnight, touched a six-week peak of $52.73 a barrel.
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The jump in oil prices added to inflation expectations in the United
States, which were already rising on prospects that President-elect
Donald Trump would adopt reflationary policies using a large fiscal
stimulus.
"We've had a spike in oil prices plus better data, so we're seeing the
reflation trade come back," said Martin van Vliet, senior rates
strategist at ING.
As a result the rout in U.S. Treasuries resumed, with yields pushing
higher, especially on longer-dated bonds. The yield on 10-year and
30-year bonds <US10YT=RR< <US30YT=RR>, which are most sensitive to
inflation eroding their value, rose 5 basis points to 2.417 percent and
3.077 percent, respectively.
STERLING EFFORT
The 30-year yield has climbed more than 40 basis points since the Nov. 8
presidential election, heading back toward a 14-month peak of 3.09
percent marked last week.
The 10-year yield had its biggest monthly rise in November since 2009.
Bonds across the world have lost about $2 trillion in market value since
the Nov. 8 U.S. election, according to Bank of America Merrill Lynch <.MERGBMI>
data.
Sterling grabbed the limelight in currencies, jumping to a three-month
high against the euro and on a trade-weighted basis after Britain's
Brexit minister David Davis said London would consider paying into the
EU budget for market access.
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![](../images/120116pics/busine15.jpg)
Men walk past an electronic board showing Japan's Nikkei average
outside a brokerage in Tokyo, Japan, November 18, 2016. REUTERS/Toru
Hanai
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The pound had slumped to historic lows following June's vote to leave
the European Union on fears of a "hard Brexit", which would see Britain
give up full access to the single market and the EU customs union in
favor of retaining full control over its borders.
"These headlines suggesting Britain may be able to access the single
market are generating substantial sterling demand from traders and
investors looking to reduce their short positions and unwind hedges,"
said Neil Jones, head of FX hedge fund sales at Mizuho.
The Bank of England's trade-weighted broader measure of sterling rose to
78.8 and the pound was at its strongest against the euro for three
months at 83.96 pence per euro. It hit a three-week high of $1.2650
against the dollar after Davis' comments.
The dollar advanced to a 9-1/2-month high of 114.83 yen before pulling
back to 114.30 and the euro recovered from the previous day's slide to
trade back above $1.06 <EUR=> after shedding 0.6 percent the previous
day.
Europe's index of leading 300 shares was down 0.8 percent at 1,340
points, Germany's DAX was down 1 percent and sterling's strength
drove Britain's FTSE 100 down 1.3 percent .
Energy and resources stocks in Europe shares outperformed the broader
indices, which snapped a two-day winning run. The STOXX Europe 600 Oil
and Gas index was up 1.5 percent, while the basic resources index
was up 2.1 percent.
MSCI's index of Asian shares ex-Japan rose 0.4 percent, lifted by
stronger-than-expected Chinese manufacturing data, and Japan's Nikkei
225 rose 1.1 percent after the yen fell to its lowest since
February close to 115 per dollar.
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Spot gold touched a 10-month low of $1,163.45. Bullion fell 8 percent in
November, its worst month in three years.
(Editing by Hugh Lawson)
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