By Wayne Cole

SYDNEY (Reuters) – Asian shares got off to a cautious start on Monday as a jump in oil prices to three-year highs could inflame inflation fears and aggravate the recent hawkish turn by some major central banks.

Oil pushed past its July peaks as global output disruptions forced energy companies to pull large amounts of crude out of inventories, while a shortage of in Europe pushed costs up across the continent. [O/R]

added another 62 cents on Monday to $78.71 a barrel, while rose 71 cents to $74.69.

In a client note, analysts from Goldman Sachs (NYSE ) said that the rally would continue. They had lowered their year-end Brent forecast to $90/bbl from $80 previously.

We are surprised at the current oil supply-demand gap in the world. The recovery of global demand due to the Delta impact is even more rapid than what we had predicted.

This could fuel speculation about global inflation being more durable than initially thought. It also may accelerate the end super-cheap cash. Reflation trades in energy and bank stocks will be favoured while bond prices are resurged.

The MSCI’s Asia-Pacific broadest index was not able to recover from three weeks of consecutive losses.

The hope for additional fiscal stimulus after the election of a new prime Minister boosted 0.4%.

Nasdaq futures edged up 0.1%, and 0.3%.

China Evergrande Group’s fate remains unknown. The property giant failed to make a payment for offshore bonds last week. Further payments are due next week.

The most severe pressure has been felt by stocks in Hong Kong, although the Beijing government did increase liquidity.

Analysts at JPMorgan (NYSE 🙂 wrote that “we expect policymakers from China to permit deleveraging of real estate sector debt to be taken hold with an eye towards reducing moral hazard but we are confident they will actively manage restructuring and effectively limit financial leakovers.”

The House of Representatives is expected to vote this week on the $1 trillion infrastructure bill. A Sept. 30 deadline for funding federal agencies may force a second partial shutdown.

This week will be packed with speeches from the U.S. Federal Reserve, led by Chairman Jerome Powell, on Tuesday and Wednesday. There’s also more than a dozen events.

Bond yields saw a sharp rise last week after the latest U.S. central banking hawkish move, as well as several other global ones.

With the 10-year Treasury at 1.46 percent, it is the highest level since July 1, amid speculation that the reflation trade may be back in play as the world prepares for the demise of ultra-cheap money.

In particular, the U.S. dollar was supported by rising market currencies who compete with Treasuries in global funds.

The dollar stood firm against a basket currency and was just below August’s 10 month high of 93.734.

The dollar even gained some ground against the Japanese yen, reaching a significant chart barrier of 110.79. The currency would reach territory that it hadn’t been since late July if the barrier was broken.

As investors considered the consequences of the German centre-left Social Democrats leading a government after Sunday’s narrow election victory, the euro remained steady at $1.1719.

Social Democrats won a mandate from the government to run it for the first times since 2005. It ends 16 years under Angela Merkel’s conservative rule.

CBA analysts wrote in a note that the possibility of Germany shifting to the left means Germany’s fiscal position could be less detrimental over the coming years. This would eventually benefit the euro.

A stronger dollar is weighing on gold. It was at $1,748 per troy ounce. This was just above the six-week low of $1.738.