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Oil prices drop with partial refloating of megaship blocking Suez Canal

Both main oil contracts tumble more than 1% after salvage teams free cargo vessel; Asian markets follow Wall Street record as part of strong global rebound

Ever Given, a Panama-flagged cargo ship that is wedged across the Suez Canal and blocking traffic in the vital waterway is seen March 29, 2021 (AP Photo/Mohamed Elshahed)
Ever Given, a Panama-flagged cargo ship that is wedged across the Suez Canal and blocking traffic in the vital waterway is seen March 29, 2021 (AP Photo/Mohamed Elshahed)

HONG KONG, China — Asian markets mostly rose Monday, extending last week’s positive finish and tracking a record-breaking lead from Wall Street, as investors focus on the economic recovery, while oil prices dropped on news that a cargo ship blocking the Suez Canal had been refloated.

A below-forecast reading on US prices on Friday provided support as it eased fears that inflation caused by an expected strong global rebound will force central banks to wind back their ultra-loose monetary policies or hike interest rates.

The week ahead will provide plenty for traders to get their teeth into including the release of key US jobs data for March and figures on manufacturing activity around the world.

US President Joe Biden is also tipped to soon unveil the next leg of his economic recovery plan targeting infrastructure, which some suggest could come in around $3 trillion. That comes just as his recently passed $1.9 trillion stimulus begins to kick in.

US President Joe Biden answers a question during his first press briefing in the East Room of the White House in Washington, DC, on March 25, 2021. (Jim WATSON / AFP)

Still, that is causing some concern as the bill for this will likely be paid for by higher taxes, while there is also a worry that it will add to upward pressure on prices. US Treasury bond yields — a guide to future interest rates — are already sitting around one-year highs.

Still, John Bilton, at JP Morgan Asset Management, said: “Inflation remains a persistent concern for investors. We expect headline inflation to be volatile in the second and third quarters, with the potential for some sticker shock as annualized base effects generate optically elevated year-on-year readings.

“However, we believe that many of the secular disinflationary forces — globalization, technology adoption, etcetera — continue to anchor core inflation so that even allowing for huge policy stimulus, inflation rates should remain contained in 2021.”

‘Double-edged sword’ 

Wall Street’s three main indexes finished Friday on a strong note, with the Dow and S&P 500 ending at all-time highs.

And Asia built on the rally, with Tokyo, Taipei, and Jakarta all up more than one percent, while Shanghai, Hong Kong, Seoul, Singapore, Manila, Bangkok, and Wellington all enjoyed healthy gains. Sydney dipped, however, as Australian investors were spooked by news that Brisbane had been put into a three-day lockdown.

Britain’s Prime Minister Boris Johnson holds a vial of the AstraZeneca COVID-19 vaccine during a visit to a vaccination center at the Health and Well-being Centre in Orpington, south-east London, February 15, 2021. (Jeremy Selwyn/Pool Photo via AP)

Optimism was also being supported by the success of vaccine rollouts in the United States and Britain, where infection rates are slowing and officials move to ease some lockdown measures.

Even European markets were buoyant, despite the continent’s stuttering inoculation drive and rising infections, thanks to some forecast-beating economic data.

But Axi strategist Stephen Innes said this week’s data releases would be crucial to driving further gains.

“Given there is so much optimism in the economic reopening narrative baked into the price, it’s hugely important this week’s financial data, at minimum, meets expectations to maintain this ship on an even keel,” he said in a note.

“But this could be a double-edged sword for pockets of the market as the combination of stimulus and robust data support equity prices. However, tech faces some challenges if the ‘risk-on’ signal manifests into higher real yields.”

This satellite image from Maxar Technologies shows the cargo ship MV Ever Given stuck in the Suez Canal near Suez, Egypt, March 27, 2021. (©Maxar Technologies via AP)

Both main oil contracts tumbled more than one percent after salvage teams were said to have finally freed a megaship which has blocked the Suez Canal for almost a week.

Maritime services provider Inchcape’s tweet that the Ever Given had been refloated in the early morning means one of the most important routes for global trade and crude shipments can reopen.

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