Oil at new multi-year highs, Asian shares fall

The gains in oil are driven by concerns about energy supply, and come two days after the OPEC+ group of producers stuck to its planned output increase rather than raising it further.

Asian shares fall. Image source: Reuters

Asian shares dropped on Wednesday, reversing early gains, after an overnight rebound in U.S. and European stocks as investors shrugged off worries about a potential U.S. government debt default, while oil paused near new multi-year highs.

The gains in oil are driven by concerns about energy supply, and come two days after the OPEC+ group of producers stuck to its planned output increase rather than raising it further.

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U.S. crude rose to its highest level since 2014 on Wednesday but pared gains and was last off 0.09% to $78.87 a barrel. Brent crude lost 0.08% to $82.49 per barrel, having hit a three-year high in the previous session.

"OPEC’s outlook suggests further reductions in global oil stockpiles. That’s a problem given that oil inventories are already low," wrote analysts at CBA in a note.

Rising prices could threaten the global economic recovery as global oil demand growth was picking up as economies re-opened on the back of rising vaccination rates, they added.

In equity markets, MSCI`s broadest index of Asia-Pacific shares outside Japan fell 0.6%, reversing early gains, while Japan`s Nikkei lost 0.78%.

Traders say markets are jittery due to worries about China`s real estate market as well as approaching higher interest rates around the world.

There were falls in Hong Kong off 1%, Korea down 0.9% and Australia down 0.45%.

U.S. stock futures, the S&P 500 e-minis shed 0.44%.

Chinese markets remained closed for a public holiday, and shares of cash-strapped Chinese developer China Evergrande were suspended having stopped trading on Monday pending an announcement of a significant transaction.

Uncertainty about Evergrande`s fate roiled Chinese property developers` bonds and Hong Kong-listed shares and bonds on Tuesday following fresh credit rating downgrades.

Elsewhere, New Zealand`s central bank raised interest rates by 25 basis points but reaction was muted as the move to increase the cash rate to 0.50% was widely expected.

The announcement caused the New Zealand dollar to rise about 0.1%, before falling 0.34%.

Overnight the Dow Jones Industrial Average rose 0.92%, the S&P 500 gained 1.05% and the Nasdaq Composite climbed 1.25%, despite worries that the United States will default on its debt.

The Senate will vote on Wednesday on a Democratic-backed measure to suspend the U.S. debt ceiling, a key lawmaker said on Tuesday, as partisan brinkmanship in Congress risks an economically crippling federal credit default.

These fears, however, did help push the dollar back towards its 12-month highs and benchmark treasury yields to near their highest level since mid June.

In Asian trading, the dollar hovered close to its highs for the year against a basket of its peers, while the euro EUR=EBS stayed near its 14-month low struck last week.

The safe-haven yen JPY=EBS fell about 0.5%, reflecting a positive mood in equity markets.

The yield on benchmark 10-year Treasury notes rose to 1.5466%, nearing a four-month high of 1.5670% hit in late September.

Spot gold shed 0.15% to $1757.3 an ounce, with the non-interest bearing asset hurt by higher yields.

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