World shares steady as oil drops on Saudi Arabia's talk of output boost

By Danilo Masoni and Andrew Galbraith

MILAN/SHANGHAI (Reuters) - World shares were largely steady on Thursday after recent weakness as a drop in oil prices on bets Saudi Arabia may boost production helped balance concerns over surging inflation and monetary policy tightening.

The MSCI's benchmark for global stocks was 0.05% lower by 0816 GMT, helped by morning gains in Europe which almost offset earlier weakness in Asia where investors were put off by concerns over high inflation and the threat of recession.

Derivative markets pointed to a positive start later in the United States following losses on Wednesday when economic data failed to ease angst over rate hikes to fight inflation.

Crude oil fell as much as 3% ahead of an OPEC+ producers' meeting later in the day, and after the Financial Times reported the Saudis were prepared to raise production if Russia's output falls substantially because of Western sanctions.

"None of that will alleviate the refining bottleneck/crunch that is causing petrol and diesel prices to soar globally, but it would be a rare piece of good news for the global economy and the inflation fight," said OANDA analyst Jeffrey Halley.

"It certainly isn't in OPEC's interests to send the world into a recession," he added.

Two OPEC+ sources said the organisation was working on making up for a drop in Russian oil output which has fallen by around 1 million barrels per day as a result of Western sanctions on Moscow over Ukraine.

The pan-European STOXX 600 index was 0.4% higher, although volumes were expected to be subdued as London markets were shut for Queen Elizabeth's Platinum Jubilee bank holidays.

In the United States, S&P 500 and Nasdaq e-mini futures were up 0.3% and 0.5% respectively.

Over in Asia, stocks caught up with Wednesday's weakness on Wall Street, slipping for a second straight session, on concern over high inflation and the threat of recession.

A new survey of South Korean factory activity showed slowing growth in May as import and export orders shrank, the latest indicator of global manufacturing woes.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.9%. Seoul's KOSPI was down 1% and in Tokyo, the Nikkei slipped 0.2%.

Investors' worries over inflation and recession have festered amid uncertainty caused by the U.S. Federal Reserve's pace of interest rate hikes, the impact of the Russia-Ukraine war on food and commodity prices, and supply chain constraints exacerbated by strict COVID-19 curbs in China.

Global benchmark Brent crude oil declined 2.1% to $113.8 per barrel ahead of the OPEC+ meeting and U.S. crude prices fell 2.5% to $112.75.

Carlos Casanova, senior Asian economist at Union Bancaire Privee in Hong Kong, said that an increase in Saudi production could see oil prices stabilise around $100-$110 per barrel.

The dollar index fell 0.3% to 102.24, reversing part of Wednesday's gains. That helped the euro climb 0.4% to $1.069, following two days of losses.

The Swiss franc hit a one-month high against the euro after Swiss inflation soared to its highest in 14 years in May as transport, food and drinks became more expensive.

Benchmark 10-year German yields hit a new 8-year high at 1.216%, as inflation data this week boosted expectations that the European Central Bank might move faster in tightening policy. They were last up 2.8 basis points on the day.

U.S. 10-year yields were steady at 2.9149% and the two-year yield rose 1.6 bps to 2.6641%.

The lower yields and the retreat in the U.S. dollar kept gold prices supported. Spot gold was up 0.3% at $1,851.6 per ounce [GOL/]

 

(Reporting by Danilo Masoni and Andrew Galbraith)