Oil Rises as Arab Nations Cut Ties with Qatar

Brent crude oil climbed further above the $50-a-barrel mark after four Arab nations cut diplomatic ties with Qatar. Equities made a choppy start to the week in Asia, while the Mexican peso rebounded after an early dip amid election uncertainty.

European bourses are expected to open firmer, with spreadbetters predicting the UK’s FTSE 100 will add 8 points to 7,556 but Germany’s markets closed for a holiday. US index futures suggest the S&P 500 will shed 2 points to 2,438, when trading gets under way later in New York.

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Oil prices were on the rise after Saudi Arabia, Egypt, the United Arab Emirates and Bahrain severed ties with Qatar, accusing their neighbour of financing terror and undermining security.

Brent crude, the international benchmark, climbed 1.4 per cent to $50.66 a barrel, reclaiming the $50 mark after ending Friday down 1.3 per cent. West Texas Intermediate, the US marker, was also up 1.4 per cent at $48.33.

Asia Pacific equities were under pressure, however, with Australia’s S&P/ASX 200 index dropping 0.8 per cent under the weight of banks, energy and mining stocks. In Japan the Topix was off flat as a 1 per cent rise by telecoms stocks was offset by a 1.2 per cent fall for the financials segment.

SoftBank gained as much as 2.8 per cent on reports the telecoms conglomerate was seeking another $7bn for its tech fund. In Hong Kong the Hang Seng Index slipped 0.3 per cent, led by utilities and industrials. China Shenhua Energy rose 3.3 per cent on media reports that its parent group was in merger talks with that of Guodian Technology and Environment, shares in which were up 19.2 per cent.

Mainland Chinese stock markets were diverging, with the Shanghai Composite index down 0.5 per cent and the tech-focused Shenzhen Composite up 0.5 per cent.

Forex

Mexico’s peso was the biggest mover among international currencies, dropping 0.8 per cent as investors await the outcome of a key gubernatorial election for the state of Mexico, before reversing for a gain of 0.6 per cent, to 18.5685 per dollar as officials projected a narrow win for the ruling Institutional Revolutionary Party. The dollar index, which tracks the greenback against a basket of peers, was up 0.1 per cent at 96.81.

The UK pound weakened 0.2 per cent to $1.2863 in the wake of terror attacks in London at the weekend that left seven dead and 48 injured. Among Asian currencies, the Japanese yen lost 0.2 per cent to ¥110.67 per dollar while the Australian dollar edged up 0.1 per cent against its US counterpart, to $0.7445.

The South Korean won gained 0.1 per cent against the greenback to Won1,118.70 after the cabinet of President Moon Jae-in approved a $10bn extra budget to create more jobs, in line with Mr Moon’s campaign pledge to prioritise employment.

Fixed income

Sovereign bonds were mixed in Asia Pacific trading.

The yield on 10-year US Treasuries was up 1 basis point at 2.166 per cent.

The 10-year Australian bond yield fell 3 basis points to 2.38 per cent as the country’s equities slumped, but that for the equivalent Japanese government bond was virtually unmoved at 0.04 per cent. Yields move inversely to prices.