Oil tops $50, lifts commodity stocks but Fed, China weigh – Reuters

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Brent crude oil topped $50 a barrel for the first time in nearly seven months on Thursday lifting commodity and energy-related shares in Europe and Asia though worries about U.S. interest rates and signs of slowdown in China limited gains.

Oil’s rise took it to levels more than 80 percent above January’s 12-year lows and was fuelled in part by a weaker dollar, which fell against the Japanese yen.

European shares edged higher, led by the basic resources and oil and gas sectors. The pan-European FTSEurofirst 300 index rose 0.2 percent, pushing on from a four-week high hit on Wednesday. The STOXX 600 basic resources index rose 2.4 percent. Oil and gas added 0.8 percent.

Energy shares also outperformed in Asia but a slide in Chinese shares to 2 1/2-month lows after weaker-than-expected corporate profit data, meant Asian equities struggled to build on positive momentum from Wall Street.

“Oil inventory data has been mixed over the last six months but much of this depends on how many believe that we are on the cusp of an increase in global demand and economic recovery,” said Atif Latif, Director of Trading at Guardian Stockbrokers.

Japan’s Nikkei rose 0.1 percent, giving up earlier gains as the yen firmed, while MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2 percent, struggling to extend its rebound from Tuesday’s 12-week low.

Chinese shares fell more than 1 percent at one point, with the CSI300 index touching its lowest since March 11 after data on Thursday showed profits at state-owned firms fell 8.4 percent year-on-year in the first four months of 2016, while debts rose 18 percent. However, a late rally saw the index close 0.2 percent higher.

Brent, the international benchmark oil price, rose as high as $50.26 a barrel, its highest since early November, in the wake of data showing a sharper-than-expected fall in U.S. crude stocks last week.

“Geopolitical issues in West Africa and the Middle East, supply outages, increased demand and maybe a touch of a weaker dollar have all helped push prices higher,” said Jonathan Barratt, chief investment officer at Sydney’s Ayers Alliance.

He added, however, that the rally would not last as the higher prices would bring U.S. shale oil back on to the market.

In currency markets, the yen rose 0.2 percent to 110 per dollar and 0.1 percent against the euro to $1.1169.

The greenback hit a two-month high against a basket of currencies on Wednesday, on a roll after minutes of the Federal Reserve’s latest policy meeting and comments from Fed officials hinted that an interest rate rise could be imminent.

Dallas Fed chief Robert Kaplan said on Wednesday he would support raising rates in the “near future” but added that Britain’s June 23 vote on its European Union membership would weigh on any decision at the Fed’s June meeting.

The cost of hedging against big swings in sterling over the next month hit seven-year highs on Thursday.

Investors are looking to a speech by Fed Chair Janet Yellen on Friday for more clues to the rate outlook.

Yields on two-year U.S. Treasuries hit 10-week highs around 0.94 percent on Wednesday on expectations of a possible rate hike and as U.S. stocks rose.

German 10-year government bond yields, the benchmark for euro zone borrowing costs, rose about 1 basis point on Thursday to 0.16 percent.

The markets is already turning to next Thursday’s European Central Bank policy meeting, at which it will unveil new growth and inflation forecasts.

Higher oil prices have helped lift a gauge of long-term inflation expectations often cited by the ECB – the five-year, five-year breakeven rate EUIL5Y5Y=R> – above 1.5 percent, though this remains below the ECB’s inflation target of near 2 percent.

(Additional reporting by Hideyuki Sano in Tokyo, Anirban Nag anfd Alistair Smout in London)