The OPEC+ alliance’s production cut has helped oil prices climb above $80 per barrel, but the US manufacturing sector’s weaker-than-expected report for March has raised concerns about the economy’s strength.
On Monday, the ISM manufacturing report revealed a reading of 46.3, lower than the expected 47.5 and February’s 47.7 reading. This is the fifth consecutive month with a reading below 50, the lowest since the pandemic, indicating a contraction in the manufacturing sector.
While crude prices saw their largest one-day gain in a year, the ISM manufacturing report countered OPEC+’s surprise production cut, triggering inflation jitters.
Although the S&P 500 index initially opened higher, led by the energy sector, healthcare, and consumer staples, it gave back those gains shortly thereafter as traders and analysts were unsure about how much higher crude prices would go.
Ed Moya, an analyst at online trading platform OANDA, stated, “Wall Street was trying to find its footing as well after a weaker than expected US manufacturing report countered the oil cartel’s surprise production cut that triggered inflation jitters.”
He added that US Treasury yields gave up all their OPEC+-inspired output cut gains after factory activity plunged. Yields on the 10-Year Treasury note fell 6.7 basis points to 3.4%.
New York-traded West Texas Intermediate (WTI) crude settled Monday’s trade at $80.42, up $4.75, or 6.3%, after a session high of $81.58. Since hitting 15-month lows of $64.12 on March 20, the US crude benchmark has gained 25%, more than making up for the 13% weekly loss from three weeks ago.
Brent crude settled at $84.93, up $5.04, or 6.3% after peaking at $86.44 for the session. Brent hit an intraday low of $70.06 on March 20.
Some traders and analysts were already looking at what the Federal Reserve would do in terms of rate hikes to counter new inflation pressure almost certain from the now OPEC-inflated oil price.
The Investing.com Fed Rate Monitor Tool has assigned a 60% probability of the Fed raising another quarter point in rates in May, up from 40% the previous week, to bring them to a peak of 5.25%.
Moya warned that the economy was at risk of a recession as consumers were weakening, lending was about to become ugly, energy cost uncertainty would remain high, and monetary policy was finally restrictive and about to break parts of the economy.
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