While you were sleeping: Oil, energy stocks climb

Wall Street gained with oil prices, while 10-year US Treasury yields climbed above 3 percent amid bets the Federal Reserve will step up the pace of interest rate increases to keep inflation in check.

Oil prices climbed to the highest level in more than three years as the latest data showed a surprise decline in US stockpiles a day after President Donald Trump pulled the country out of the nuclear deal with Iran.

US crude traded 3 percent higher at US$71.12 per barrel as of 2.47pm in New York while Brent traded 3.1 percent stronger at US$77.20.

Those gains translated to increased appetite for energy stocks. Shares of Exxon Mobil traded 2.2 percent higher while those of Chevron were 1.8 percent stronger as of 2.56pm in New York.

"Most energy companies have budgeted for mid-US$50s oil prices in 2018, with this conservative outlook reflected in share prices today,” Richard Turnill, global chief investment strategist at BlackRock, said in a note to clients, Bloomberg reported.

“This points to valuation upside should current levels of oil prices be sustained,” Turnill noted “In energy equities, we like exploration and production firms and midstream companies.”

In 2.34pm trading in New York, the Dow Jones Industrial Average climbed 0.7 percent, while the Nasdaq Composite Index gained 1 percent. In 2.18pm trading, the Standard & Poor’s 500 Index rose 1 percent.

US Treasuries fell, lifting the yield on the 10-year note above 3 percent.

“Oil is probably not helping, it’s a kind of a potential inflation indicator,” Mark Travis, chief executive officer of Intrepid Capital Funds in Jacksonville Beach, Florida, told Reuters.

Meanwhile, a US Labour Department report showed its producer price index for final demand rose 0.1 percent in April, less than economists had predicted and following a 0.3 percent gain in March.

It "suggests that the earlier surge in cost pressures at the beginning of the pipeline may be starting to ease, particularly with the core rate also dropping back," Andrew Hunter, US economist at Capital Economics, said in a note.

"That said, the details of the report remain consistent with consumer price inflation trending higher, and we continue to expect the Fed to tighten policy more aggressively over the coming quarters," according to Hunter.

The Dow moved higher as gains in shares of General Electric and those of DowDuPoint, recently up 2.8 percent and 2.6 percent respectively, outweighed slides in shares of Walmart and those of Walt Disney, recently down 2.8 percent and 2 percent respectively.

Shares of Walmart slid amid concern about the retailer’s move to buy a majority stake in India’s Flipkart for about US$16 billion.

If the transaction were to close at the end of the second quarter of this fiscal year, Walmart expects a negative impact to full-year 2019 earnings per share of approximately US$0.25 to US$0.30, which includes incremental interest expense related to the investment, it said in a statement.

Even so, Moody's analyst Charlie O'Shea said he views the deal favourably, CNBC reported.

"As Flipkart is expected to generate meaningful losses for at least the next few years, this is clearly an investment for the future, and when viewed in tandem with the recently announced sale of a majority stake in Asda, is indicative of Walmart's long-standing strategy of shifting resources into higher growth potential markets and segments when opportune," O’Shea said.

In Europe, the Stoxx 600 Index ended the day with a 0.6 percent advance from the previous close. The UK’s FTSE 100 Index rallied 1.3 percent, France’s CAC 40 Index gained 0.2 percent, while Germany’s DAX index also added 0.2 percent.