NEW YORK/LONDON—Oil prices surged again on Monday to multi-year peaks, giving a fillip to materials and energy shares and helping U.S. stocks to reverse early declines as investors looked past stagflation risks for now.
U.S. crude jumped 2.28 percent to $81.16 per barrel, a level not seen since late 2014, and Brent rallied 1.9 percent to $83.98.
“Oil prices are likely to continue climbing in the short term,” said Commerzbank analyst Carsten Fritsch.
Red-hot energy prices lifted basic materials and energy stocks in the S&P 500 Index, helping Wall Street to shed early losses.
The Dow Jones Industrial Average rose 152.82 points, or 0.44 percent, the S&P 500 gained 18.99 points, or 0.43 percent, and the Nasdaq Composite added 64.51 points, or 0.44 percent.
The pan-European STOXX 600 index lost 0.08 percent and MSCI’s gauge of stocks across the globe gained 0.41 percent.
However, some analysts warned that runaway energy prices would likely fan inflation pressure and lead central banks to tighten monetary policy, which could dampen economic growth.
“Higher energy prices, shortages will inevitably make their way through global value chains in the form of rising prices and potentially shortages of industrial and consumer goods,” OANDA analyst Jeffrey Halley said.
“All of this makes the constant blathering from central bankers around the world about inflation being ‘transitory’ ring more and more hollow.”
Analysts at BofA warned that the global inflationary pulse would be aggravated by energy costs with oil potentially topping $100 a barrel amid limited supply and strong re-opening demand.
The winners in such a scenario would be real assets, real estate, commodities, volatility, cash and emerging markets, while bonds, credit and stocks would be affected negatively.
BofA recommended commodities as a hedge and noted resources accounted for 20–25 percent of the main equity indexes in Britain, Australia, and Canada; 20 percent in emerging markets; 10 percent in the euro zone, and only 5 percent in the United States, China, and Japan.
Bets that major central banks could tighten monetary policy sooner rather than later pushed up bond yields and lifted the dollar to a near three-year peak against the Japanese yen.
The Japanese yen weakened 0.89 percent versus the greenback at 113.20 per dollar, while the dollar index rose 0.003 percent.
The prospect of accelerating inflation and tighter monetary policy lifted bond yields.
Benchmark 10-year yield climbed to 1.6118 percent from 1.605 percent late on Friday. Yield on the 2-year note also rose to 0.3198 percent from 0.318 percent.
Gold prices were little changed. Spot gold added 0.1 percent to $1,757.77 an ounce. U.S. gold futures fell 0.02 percent to $1,755.90 an ounce.
Graphic: Oil vs US stock market in 2021:
By Koh Gui Qing and Tom Arnold