European stock futures lower; oil prices surge on OPEC+ cut

By Peter Nurse

Investing.com - European stock markets are expected to open largely lower Monday as investors digest surging oil prices and disappointing manufacturing activity data from Asia, ahead of the release of the equivalent European numbers.

At 02:00 ET (06:00 GMT), the DAX futures contract in Germany traded 0.4% lower, CAC 40 futures in France dropped 0.3%, while the FTSE 100 futures contract in the U.K. traded flat.

European equities posted healthy gains over the course of the first quarter, with the DAX over 12% and the CAC 40 over 13%, but these rewards could leave the indices more vulnerable to an economic downturn, which may have been brought closer by the tumult in the banking sector.

Data out of Asia earlier Friday showed that factory activity in the region weakened in March. Japan and South Korea both saw manufacturing activity contract in March while growth in China stalled as soft overseas demand hurt output, suggesting a slowdown in the consuming western economies.

Manufacturing PMI data out of the euro zone are scheduled for release later in the session, and investors will be looking to see if manufacturing in the dominant German economy remains in contraction territory.

Also weighing on sentiment Monday is a sharp surge in oil prices after the Organization of Petroleum Exporting Countries and allies, known as OPEC+, unexpectedly announced on Sunday it will cut production by over 1 million barrels per day through to the end of 2023.

This move came ahead of a virtual meeting of the group’s monitoring committee later Monday, which had been widely expected to confirm the production levels agreed upon in November.

By 02:00 ET, U.S. crude futures traded 4.5% higher at $79.06 a barrel, while the Brent contract climbed 4.6% to $83.64.

Soaring oil prices will worry central banks already fretting about elevated inflation levels, and could force them to keep interest rates at a higher level for longer, crimping economic growth.

This may be particularly relevant in Europe where core inflation, which strips out volatile energy and food costs, accelerated to an all-time high of 5.7% in March.

The European Central Bank hiked by 50 basis points last month, and President Christine Lagarde stated on Friday that underlying inflation remains “significantly too high”, suggesting the policymakers see further rate increases in the month ahead.

In the corporate sector, UBS (SIX:UBSG) is poised to reduce its workforce by 20-30%, the Swiss press reported Sunday, as it integrates its former rival Credit Suisse (SIX:CSGN), which it acquired last month in a deal engineered by the Swiss authorities to help global financial stability.

Additionally, gold futures fell 0.8% to $1,970.00/oz, while EUR/USD traded 0.4% lower at 1.0795.