The Hindu Business Line : Markets await Jeddah tête-À-tête

Stock markets and governments around the world will look forward to Saudi Arabia, the world’s largest producer of oil, this weekend. The fall-out of the June 22 meeting of members of the Organization of the Petroleum Exporting Countries (OPEC) and representatives from the world’s oil-consuming countries will take place at Jeddah.

While there are expectations that Saudi Arabia will announce a plan to increase production, the OPEC President, Mr Chakib Khelil, said on Friday that it was unreasonable and irrational to request the ‘oil group’ to enhance output so as to take the pressure off high prices.

China relents

Mounting oil prices have punctured the growth wheel of many Asian and emerging economies and their stock markets continue to be held hostage. This week was no different as crude oil futures traded at New York Mercantile Exchange (for July delivery) closed 2 per cent higher, although they were 0.2 per cent down at $134.62 a barrel for the week. As if accepting that demand will not be met with supply, world’s fourth biggest economy China raised different fuel prices by 17-25 per cent, risking inflationary pressures. Bourses at Shenzhen, Shanghai closed 6-7 per cent down for the week.

Inflation hits

India, Indonesia, and Malaysia are among the other Asian countries that have already succumbed to fuel price hikes this year, fuelling inflation. Malaysia’s inflation rose to a 22-month high of 3.8 per cent in May while inflation in Indonesia and India breached double-figures at 10.38 per cent and 11.05 per cent respectively.

While price hikes may theoretically reduce demand, fuel by virtue of its being so intimately linked with day-to-day usage may not seem to follow path in developing economies.

With the exception of Singapore, Hong Kong and Japan, all major indices in Asia logged negative returns this week. Pakistan bled the most, 9.6 per cent down, not on inflation-linked concerns but on political apprehensions that the newly elected governing coalition may fall out on certain issues.

Europe down

However, the ‘inflation theme’ took a toll on Latin American countries such as Mexico (fell 3 per cent for the week) and Brazil (down 4 per cent). Mexico’s central bank all of a sudden hiked benchmark interest rate in a bid to play curveball with building inflationary pressures, while Brazil was weighed by losses across Wall Street.

Dow Jones Industrial Average ended nearly 4 per cent down for the week after Friday’s 200-point pounding due to rebounding energy prices and financial sector concerns exacerbated by Merrill Lynch cutting earnings estimates for regional banks. Europe, which had a depressing week with 25 major stock indices ending in red, may face trouble this week after the Venezuelan President, Mr Hugo Chavez, threatened the European Union with an oil boycott as if to settle scores with the EU Parliament which passed rules deporting illegal immigrants.

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