Global stocks take a breather

Today, global stock markets catch a break, even as oil prices keep climbing on the Middle East crisis.

Plus, Europe worries about another war-related energy shock.

And China sets its lowest GDP targets since 1991.

This is Reuters Morning Bid bringing you unthirtered market news and analysis straight from the Reuters newsroom seven days a week.

I'm Mike Dolan in London.

And I'm Anna Shamancki. It's Thursday, March 5th.

While Mike, the war is continuing to rage, oil prices stay elevated, yet markets seem to be setting a bit.

Yeah, look, I think we need to couch anything that's happening in this really kind of turbulent week.

Within the framework that everything is being traded almost headline by headline, certainly day by day, if not hour by hour.

So it's almost like a sequencing of world markets as we go around the 24-hour period.

So yesterday about sort of mid-morning European time, there was something of a rally in global stocks generally.

It hinged on this idea that Iran had made some overtures to the United States.

A story that's been slightly downplayed since.

However, it was enough just to get everyone taking a pace back, taking a breather, if you like.

And it saw Wall Street kind of rally through yesterday's session.

That was enough in Asia today to see a bounce back in some really big losses that they've incurred.

For the end stock market.

A really obvious one.

It's kind of the outlier.

I had the outlier all year. It has to be said.

But at 12% biggest one day drop ever yesterday is junk back almost 10% today.

So very volatile.

I think we can say that for sure.

And it seems to me that you have markets making these relatively big moves.

Despite the fact that as you say, there's not actually that much news to support it.

And that really suggests that investors are essentially grasping at straws at this moment.

Yeah, and I think there's two points to kind of make on that.

I think one is that as we said in the intro, the crude oil prices continuing to climb.

So we're seeing US crude said it's a high for the week.

It's highest level since last June.

It's got to be something that's worrying there for Washington.

I would say that the plans that President Trump laid out during the week

to kind of calm the energy markets in particular.

The idea of opening up the straight of hormones.

Absolutely.

Those that didn't seem to have any particular calming effect.

And as we see from all the headlines, whatever about the actual conflict and the missile strikes across the region.

We're seeing oil production coming grinding to a halt pretty much in all the centers there.

I mean, I think the concern is that this can really only go on so long

where until all of the storage in the region starts filling up.

And then you really do have to start significantly curtailing production.

You've obviously seen production already curtailed in terms of gas production and guitar.

Yeah.

And Iraq as well, you know, a very big producer clearly.

Now just holding any further able to catch the oil out like everybody else.

So we are in that funny situation where markets are looking to kind of catch a break.

And the energy markets are perhaps keeping the red flag flying.

Speaking of energy markets, one of the regions that looks especially vulnerable.

We've spoken about Asia, but also Europe.

I think when people look at what happened after the Ukraine crisis and energy prices spiked

and what that meant in terms of inflation, in terms of rates, people look at where Europe is now

and say, oh, are they going to be experiencing the same thing?

But you wrote a piece today suggesting that that might not actually be the case.

Yeah.

I think Europe had a big intake of breath when this happened because it all felt very like it did in 2022.

But let's keep it in context.

The European gas prices when the Russian invasion actively caught off all those pipelines back in that day.

gas prices trebled in the six months after the Ukraine invasion.

They are very sharply this week, partly because of the outage in Qatar.

But it is about 50% as we stand at the moment.

So it's a burn and it's going to push up energy prices for sure, but there's nothing on the same scale yet.

So this is why the duration of this conflict is so important.

And I think going back to both why stock markets maybe generally as well as European markets in particular

are not quite as alarmed maybe as you might think the spot cruise price would suggest is looking at the futures curve.

So the futures in the energy markets are talking about some normalization of these prices within the next six to 12 months.

Now that's still a long time and that will have an economic effect.

But in Europe's case, two things are very interesting that people are pointing out.

One is that European inflation is is actually running below European central banks target and gives the ECB a bit more room.

Yeah. And you know, the worry coming into this was the fact that Europe may actually be in a position where it's undershooting that target on a protracted basis.

Now this clearly takes that away. So it takes the possibility of of the ECB cutting again off the table completely.

It doesn't force them into a situation where they need to start hiking again.

I don't know it's too early to tell on that one, but certainly not at this point.

And also the second thing that they would be watching very clearly is whether this affects long term inflation expectation.

You know, when we're thinking about Europe and their inflation expectations, China really factors into that.

And one of the things that we got today were new GDP targets out of China.

And they're while they might look high for other developed markets for China, they're actually someone on the low end.

Yeah, we're solutions in 1991 as the headlines would tell us is not so four and a half to five percent.

Yeah, 4.5 to 5 percent is there is there range now rather than a point target.

I think last year was around 5 percent. So there's not a huge difference.

But the but the signaling is interesting.

And it shows some of the issues structural issues that China faces.

And it is relying or has relied on trade, the biggest trade surplus ever last year, 1.2 trillion.

To generate that headline GDP grows right.

And obviously because of the issues they've had with the United States, then so much of that needs to be rerouted to other places.

It's going to other places in Asia, but also a lot of those exports are going to Europe.

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