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Morning Bid: Restive markets simmer after oil sideswipe

September 6, 2023

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., July 20, 2023. REUTERS/Brendan McDermid/File Photo Acquire Licensing Rights

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A look at the day ahead in U.S. and global markets from Mike Dolan

Roiled by an oil price spike and dour August business soundings, world markets struggled again on Wednesday as they assessed a messy disinflation picture that complicates prospects hopes for peak interest rates.

With this month's Federal Reserve meeting hoving into view, Tuesday's decision by Saudi Arabia and Russia to extend voluntary oil supply cuts to year end sent international crude oil prices to more than $90 per barrel for the first time this year.

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That's a moment in the whole disinflation story as it virtually wipes out the negative annual base effect so powerful this year in helping drag headline inflation rates back down.

At the very least, it suggest the low-hanging fruit on the disinflation path may already have been picked, and central banks may have to battle harder from here to get inflation down to 2% goals. And it may mean headline rates tick up again this month.

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U.S. Treasury yields have been spurred again by energy price developments, alongside pressure from a swathe of new corporate debt issuance this week that sees hedging activity in benchmark bonds. U.S. 10-year yields hovered near two-week highs just under 4.30% on Wednesday and stocks fell across the world again.

The Bank of Canada is, on Wednesday, the latest G7 central bank to review policy. It's expected to stand pat on rates for now but leave options open for further hikes if necessary.