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Oil surges 10% in Asia, euro on the ropes -Breaking

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© Reuters. FILE PHOTO A view of Horizon Singapore Terminals Storage Facility on Jurong Island, Singapore July 11, 2019. Photo taken on July 11, 2019. REUTERS/Edgar Su

Wayne Cole

SYDNEY, (Reuters) – Oil prices soared by more than 10% Monday due to the possibility of a U.S. & European ban on Russian products and delays in Iranian negotiations. This was a significant stagflationary shock that affected world markets.

As the Russian-Ukraine conflict continued, the euro fell further and all commodities were rising. Russia called its February 24th military campaign “special,” and stated that it doesn’t intend to overtake Ukraine.

Brent rose $13.92 to $125.60, but was priced $12.73 lower at $130.84.

Global economic growth could be hampered by stock futures falling 1.1% while Nasdaq futures dropped 1.4%

Futures for traded at 300 points under the cash closing on Friday. U.S. Treasury options rose 10 ticks, as investors looked for safe-havens.

After climbing 21% last week the price of Russian oil was further elevated by fears of an American and European ban.

Ethan Harris, chief economist at BofA, stated that if the West cut off all of Russia’s exports of energy it would cause a significant shock on global markets.

His estimate is that Russia’s 5,000,000 barrels of oil could lead to an increase in oil prices up to $200 per barrel, and lower economic growth worldwide.

BofA says that commodity prices are experiencing their best start since 1915. Last week’s big movers included nickel rising 19%, aluminum 15%, zinc 12/12, and 8% respectively. Wheat futures surged by 60% while corn rose 15%.

The global inflationary pulse will be boosted by this. U.S. consumer price information is expected to reveal a staggering 7.9% annual increase, with the core measure being at 6.4%.

All this complicates matters for the European Central Bank’s policy meeting next week.

Tapas Strrickland, an economist with NAB, stated that “Given there is a real possibility of stagflation, the ECB will likely maintain maximum flexibility at its asset purchase program at 20 billion euro through Q2 and possibly beyond,”

However, higher CPI projections mean that there will need to be more rate increases in the future.

In the near term, a less dovish ECB and safe-haven flows combined to push German 10-year bonds yields down by 32 basis points. Meanwhile, yields on U.S. 10 year bonds dropped 23 basis point to 1.738%.

The outlook for European growth is dimming and the euro took a tumble. It fell 3.3% to its lowest level since mid-2020. Last week, it was down 0.6% at $1.0864. This could mean that its 2020 peak will be around $1.0635.

Dollar was generally firmer due to a stronger payrolls report that only confirmed market expectations of a Federal Reserve rate increase this month. It was at 98.812, having gained 2.3% in the previous week.

The oldest safe harbor, gold was up 0.7% last week at $1.983 per ounce. [GOL/]

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