Oil Tops $110, Equities Sink on Rising Ukraine War Fears

A oil pump is seen at sunset outside Scheibenhard, near Strasbourg, France, October 6, 2017. REUTERS/Christian Hartmann/File Photo
A oil pump is seen at sunset outside Scheibenhard, near Strasbourg, France, October 6, 2017. REUTERS/Christian Hartmann/File Photo
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Oil Tops $110, Equities Sink on Rising Ukraine War Fears

A oil pump is seen at sunset outside Scheibenhard, near Strasbourg, France, October 6, 2017. REUTERS/Christian Hartmann/File Photo
A oil pump is seen at sunset outside Scheibenhard, near Strasbourg, France, October 6, 2017. REUTERS/Christian Hartmann/File Photo

Crude surged past $110 a barrel Wednesday and equities sank with investors growing increasingly fearful about the Ukraine war's impact on global energy supplies and the economic recovery.

Vladimir Putin's invasion of his neighbor has sent world markets into a spiral over the past week, further fraying nerves on trading floors caused by runaway inflation and tighter central bank monetary policies, AFP reported.

The crisis has seen numerous countries hammer Moscow with a series of wide-ranging sanctions that have isolated Russia and threaten to crash its economy.

The measures have injected a huge amount of uncertainty into markets with supplies of crucial commodities including metals and grains soaring. The price of global staple wheat is sitting at a 14-year high -- having risen 30 percent in the past month.

But the main source of unease on trading floors is crude, which has rocketed since Russia began preparing to invade. On Wednesday Brent topped $110 for the first time since 2014, while WTI moved closer to that figure.

Incoming sanctions have fueled worries that exports will be cut off from Russia, the world's third-biggest producer of the commodity.

The conflict in eastern Europe comes with prices already elevated owing to tight supplies and a strong recovery in global demand as economies reopen from pandemic-induced lockdowns.

Traders will be keeping a close eye on a meeting of OPEC and other major producers, including Russia, later in the day where they will discuss whether to ramp up output to temper the price rises, which are helping fan inflation.

In his State of the Union address, President Joe Biden said the United States would join a 30-country deal to release 60 million barrels to help temper the surge in prices, though analysts have warned such moves would likely only have a limited impact.

The oil price surge has compounded fears about inflation as it sits at a 40-year high in the United States and hurts Americans in the pocket even as the economy rebounds from the pandemic shock.

However, the Ukraine crisis has given the Fed another headache as it is forced to rethink its plans to hike interest rates to get consumer prices under control.

It had been widely expected to lift this month and then up to seven times more before the end of the year, but commentators say it will likely tone down its hawkishness for fear of damaging the recovery.

"The supply chain issues and inflationary pressures will be top of mind for many investors globally," Andy McCormick at T. Rowe Price said.

"These things will almost certainly complicate the already difficult task that central banks were facing trying to battle inflation."

And Uma Pattarkine, of CenterSquare Investment Management, told Bloomberg Television: "The market was looking at anywhere up to seven rate hikes this year -- I think it will be closer to maybe the three or four we were anticipating at the very beginning of this conversation."

Fed boss Jerome Powell's two days of congressional testimony will be closely watched this week for an idea about the bank's thinking.

Wall Street and European markets tumbled Tuesday and the losses largely flowed through to Asia, which had enjoyed two days of relative calm though the selling was not as severe.

Tokyo led losses, falling 1.9 percent, while Hong Kong, Shanghai, Singapore, Taipei, Manila and Wellington also dropped. However, Sydney, Seoul, Jakarta and Bangkok eked out marginal gains.

- Key figures around 0300 GMT -
Brent North Sea crude: UP 5.6 percent at $110.87 per barrel

West Texas Intermediate: UP 5.7 percent at $109.22 per barrel

Tokyo - Nikkei 225: DOWN 1.9 percent at 26,341.95 (break)

Hong Kong - Hang Seng Index: DOWN 0.9 percent at 22,556.91

Shanghai - Composite: DOWN 0.3 percent at 3,479.16

Euro/dollar: DOWN at $1.1124 from $1.1126 late Tuesday

Pound/dollar: DOWN at $1.3320 from $1.3326

Euro/pound: UP at 83.50 pence from 83.46 pence

Dollar/yen: UP at 115.00 yen from 114.90 yen

New York - Dow: DOWN 1.8 percent 33,294.95 (close)

London - FTSE 100: DOWN 1.7 percent at 7,330.20 (close)



Expert: Türkiye Anti-inflation Steps Don’t Go Far Enough

People shop at a bazaar in Istanbul. Reuters
People shop at a bazaar in Istanbul. Reuters
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Expert: Türkiye Anti-inflation Steps Don’t Go Far Enough

People shop at a bazaar in Istanbul. Reuters
People shop at a bazaar in Istanbul. Reuters

Although Turkish inflation slowed in September, it is still raging out of control with the government avoiding difficult decisions that could help tackle it, experts told AFP.

Türkiye has experienced spiraling inflation the past two years, peaking at an annual rate of 85.5 percent in October 2022 and 75.45 percent in May.

The government claims it slowed to 49.4 percent in September.

But the figures are disputed by the ENAG group of independent economists who estimate that year-on-year inflation stood at 88.6 percent in September.

Finance Minister Mehmet Simsek has said Ankara was hoping to bring inflation down to 17.6 percent by the end of 2025 and to “single digits” by 2026.

And President Recep Tayyip Erdogan recently hailed Türkiye’s success in “starting the process of permanent disinflation.”

“The hard times are behind us,” he said.

But economists interviewed by AFP said the surge in consumer prices in Türkiye had become “chronic” and is being exacerbated by some government policies.

“The current drop is simply due to a base effect. The price rises over the course of a month is still high, at 2.97 percent across Türkiye and 3.9 percent in Istanbul.

“You can’t call this a success story,” said Mehmet Sisman, economics professor at Istanbul’s Marmara University.

Spurning conventional economic practice of raising interest rates to curb inflation, Erdogan has long defended a policy of lowering rates. That has sent the lira sliding, further fueling inflation.

But after his reelection in May 2023, he gave Türkiye’s Central Bank free rein to raise its main interest rate from 8.5 to 50 percent between June 2023 and March 2024.

The central bank’s rate remained unchanged in September for the sixth consecutive month.

“The fight against inflation revolves around the priorities of the financial sector. As a result, it is done indirectly and generates uncertainty,” explained Erinc Yeldan, economics professor at Kadir Has University in Istanbul.

But raising interest rates alone is not enough to steady inflation without addressing massive budget deficits, according to Yakup Kucukkale, an economics professor at Karadeniz Technical University.

He pointed to Türkiye’s record budget deficit of 129.6 billion lira (3.45 billion euros).

“Simsek says this is due to expenditure linked to the reconstruction in regions hit by the February 2023 earthquake,” he said of the disaster that killed more than 53,000 people.

“But the real black hole is due to the costly public-private partnership contracts,” he said, referring to infrastructure contracts which critics say are often awarded to firms close to Erdogan’s government.

Such contracts cover construction and management of everything from motorways and bridges to hospitals and airports, and are often accompanied by generous guarantees such as state compensation in the event they are underused.

“We should question these contracts, which are a burden on the budget because this compensation is indexed to the dollar or the euro,” said Kucukkale.

Anti-inflation measures also tend to impact low-income households at a time when the minimum wage hasn’t been raised since January, he said.

“But these people already have little purchasing power. To lower demand, such measures must target higher-income groups, but there is hardly anything affecting them,” he said.