Shares Steady As Oil Drops On Talk Of Output Boost

World shares were largely steady on Thursday after recent weakness as bets Saudi Arabia may boost crude production cooled down oil prices, helping balance concerns over surging inflation and monetary policy tightening.

The MSCI's benchmark for global stocks was flat at 647.8 points by 1051 GMT, supported by gains in Europe which offset earlier weakness in Asia where investors were put off by concerns over high inflation and the threat of recession.

Derivative markets pointed to a positive start later in the United States following losses on Wednesday when economic data failed to ease angst over rate hikes to fight inflation.

Crude oil fell as much as 3% ahead of an OPEC+ producers' meeting later in the day, and after the Financial Times reported the Saudis were prepared to raise production if Russia's output falls substantially because of Western sanctions.

"None of that will alleviate the refining bottleneck/crunch that is causing petrol and diesel prices to soar globally, but it would be a rare piece of good news for the global economy and the inflation fight," said OANDA analyst Jeffrey Halley.

"It certainly isn't in OPEC's interests to send the world into a recession," he added.

Two OPEC+ sources said the organisation was working on making up for a drop in Russian oil output which has fallen by around 1 million barrels per day as a result of Western sanctions on Moscow over Ukraine.

The pan-European STOXX 600 index was 0.5% higher, although volumes were expected to be subdued as London markets were shut for Queen Elizabeth's Platinum Jubilee bank holidays.

In the United States, S&P 500 and Nasdaq e-mini futures were up 0.6% and 0.8% respectively.

In Asia, stocks caught up with Wednesday's weakness on Wall Street, slipping for a second straight session, on concern over high inflation and the threat of recession.

A new survey of South Korean factory activity showed slowing growth in May as import and export orders shrank, the latest indicator of global manufacturing woes.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.8%. Seoul's KOSPI was down 1% and in Tokyo, the Nikkei slipped nearly 0.2%.

Investors' worries over inflation and recession have festered amid uncertainty caused by the U.S. Federal Reserve's pace of interest rate hikes, the impact of the Russia-Ukraine war on food and commodity prices, and supply chain constraints exacerbated by strict COVID-19 curbs in China.

Global benchmark Brent crude oil declined 2.6% to $113.3 per barrel ahead of the OPEC+ meeting and U.S. crude prices fell 2.7% to $111.2.

Carlos Casanova, senior Asian economist at Union Bancaire Privee in Hong Kong, said that an increase in Saudi production could see oil prices stabilise around $100-$110 per barrel.

Under a hypothetical bearish scenario where oil were to reach $150 and agricultural commodity prices rise further, Morgan Stanley expects the euro area economy to fall into an "outright" recession that would drag into the first half of 2023.

The dollar index fell 0.4% to 102.16, reversing part of Wednesday's gains. That helped the euro climb 0.4% to $1.069, following two days of losses.

The Swiss franc hit a one-month high against the euro after Swiss inflation soared to its highest in 14 years in May as transport, food and drinks became more expensive. It later pared gains to trade down 0.05%.

Benchmark 10-year German yields hit a new 8-year high at 1.231%, as inflation data this week boosted expectations that the European Central Bank might move faster in tightening policy. They were last up 2.6 basis points (bps) on the day.

U.S. 10-year yields were flat at 2.9113% and the two-year yield rose 0.8 bps to 2.656%.

The lower yields and the retreat in the U.S. dollar kept gold prices supported. Spot gold was up 0.5% at $1,855.5 per ounce. [GOL/]