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Oil Up, Investors Brace for Potential Stagflationary Shock

Published 2022-03-07, 12:22 a/m
© Reuters.

By Gina Lee

Investing.com – Oil was up on Monday morning in Asia, while shares plummeted in frantic trading. Investors reacted to the risk of a U.S. and European ban on Russian products and delays in Iranian talks, triggering a potential major stagflationary shock in global markets.

Brent oil futures soared 10.43% to $130.43 by 12:14 AM ET (5:14 AM GMT) after climbing as high as 18% in early, volatile trading. They were further boosted by the potential ban of Russian oil by the U.S. and Europe. WTI futures jumped 9.28% to $126.39.

The euro continued its fall, hitting parity against the Swiss franc, while commodities gained as the Russian invasion of Ukraine continues. Asia Pacific shares were also a sea of red on Monday.

"If the West cuts off most of Russia's energy exports it would be a major shock to global markets," BofA chief economist Ethan Harris told Reuters.

The loss of Russia's 5 million barrels could see oil prices double to $200 a barrel and lower economic growth globally, he added.

Oil is not the only commodity to be on the rise, with commodity prices recording their strongest start to any year since 1915, according to BofA. This will only exacerbate global inflation, with investors awaiting the U.S. consumer price index later in the week.

This could also pose a headache for the European Central Bank (ECB) when it hands down its policy decision later in the week.

"Given the potential for stagflation is very real, the ECB is likely to maintain maximum flexibility with its asset purchase program at EUR20 billion through the second quarter and potentially beyond, thus effectively pushing out the timing of interest rate hikes," NAB economist Tapas Strickland told Reuters.

"Higher consumer price index forecasts, though, mean interest rate hikes will be needed on the horizon,” he warned.

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