Shares rise, but risks of inflation flare-up pick up

Global stocks rose in cautious trade on Tuesday as investors grappled with the possibility of a flare-up in inflation due to the OPEC+ group’s surprise output target cut, while the dollar dipped after weak US manufacturing data the previous day.

An announcement on Sunday of an output target cut by the Organization of the Petroleum Exporting Countries (OPEC) and its partners, known as OPEC+, boosted oil prices and complicated the inflation outlook. Brent crude was last up 0.95 per cent at $85.72 a barrel, set for its biggest two-day rally since last April, with a gain of 7.5 per cent over Monday and Tuesday.

Investors were also assessing Monday’s survey of US manufacturing activity from the Institute for Supply Management, which in March slumped to a near three-year low as new orders plunged, and analysts said tighter credit conditions could choke off more activity, reported Reuters.

In Europe, the STOXX 600 (.STOXX) rose 0.6 per cent, led by gains Glencore (GLEN.L), whose bid for Teck Resources (TECKb.TO) was rebuffed by the Canadian copper miner the day before, while financial shares rallied, led by Investec (INVP.L), which sold its UK wealth management unit to Rathbones (RAT.L).

Meanwhile, US stock futures , pointed to a strong start on Wall Street later, rising 0.4-0.6 per cent, while the MSCI All-World index (.MIWD00000PUS) rose 0.1 per cent. “The decision by OPEC+ to catch the markets wrong-footed by announcing unexpected production cuts of 1.1m barrels a day from next month, sent oil and gas prices surging yesterday, boosting the energy sector and not much else,” CMC Markets chief market strategist Michael Hewson said.

“The move by OPEC+ is particularly unhelpful for central banks who, while being worried about sticky inflation, are becoming increasingly concerned about pushing rates up from their current levels,” he said.

A market-based gauge of medium-term US inflation expectations blipped up to its highest in a month on Monday.

The so-called five-year breakeven inflation rate - derived from subtracting the five-year inflation-linked Treasury yield from its nominal counterpart - rose to as much as 2.49 per cent.