US equities opened flat on Tuesday ahead of closely watched jobs numbers, and as oil prices continued to rise following surprise production cuts from members of the Opec+ group on Sunday.
Wall Street’s S&P 500 and the tech-heavy Nasdaq Composite both traded between gains and losses shortly after the opening bell as markets weighed the potential impact of higher fuel prices on economic growth and inflation. European indices recorded small gains.
The moves in equity markets also came as traders awaited data from the US Bureau of Labor Statistics that are expected to show job openings decreased to 10.4mn in February from 10.8mn the previous month.
In commodity markets, Brent crude, the international oil benchmark, rose 1 per cent to $85.85 a barrel after jumping 6.4 per cent on Monday, following Saudi Arabia’s move to implement a “voluntary cut” of 500,000 barrels a day, or just under 5 per cent of its output.
Opec+ member Russia also said it would extend its existing 500,000 barrels a day production cut until the end of the year. US marker West Texas Intermediate on Tuesday rose 1.3 per cent to $81.47 a barrel, having surged 6.3 per cent on Monday.
Prices for Brent crude fell to $73 a barrel from $82 in March amid turmoil in the banking sector on both sides of the Atlantic, and after the US dashed hopes that it would significantly replenish depleted stockpiles this year. The decline has been entirely reversed in the past two weeks, however, and analysts expect oil prices to tick higher over the coming months.
UBS said Brent could reach $100 a barrel by June, while JPMorgan expected prices to average $89 a barrel over the next three months before rising to $96 by the end of 2023.
Saudi Arabia and Russia’s reduction in supply was “a pre-emptive measure” designed to ensure surpluses that began accumulating in the global oil market in mid-2022 “don’t extend into the second half of 2023 as the global economy slows” because of higher interest rates, JPMorgan said.
Like oil prices, US equities have recovered from losses in early March. “For a rational investor, we think this makes little sense”, JPMorgan said. “Most of the inflows” into stocks have been driven by a decline in volatility, systematic investors and those covering short positions, it added.
Torsten Slok, chief economist at Apollo Global Management, said the S&P’s 7 per cent rally this year against a backdrop of banking sector turmoil had been driven by 20 of the largest stocks, with the market cap of the remaining 480 having “basically not gone up”.
“The implication for investors is that this market is not driven by broad-based higher growth expectations, but instead by what has happened with rates, in particular after [Silicon Valley Bank] went under,” Slok added.
Government bond markets sold off slightly, with the yield on two-year US Treasuries rising 0.04 percentage points to 4.01 per cent as prices fell.
The dollar was flat against a basket of six other major currencies, while sterling rose 0.6 per cent against the greenback.
Europe’s region-wide Stoxx 600 added 0.5 per cent and London’s FTSE 100 pared earlier losses to trade up 0.1 per cent.
Asian stocks were mixed. Hong Kong’s Hang Seng index closed down 0.7 per cent, Japan’s benchmark Topix index rose 0.2 per cent and China’s CSI 300 added 0.3 per cent.
