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US stocks saw their first weekly drop since Donald Trump's election after a surprise production cut from the Organization of the Petroleum Exporting Countries (Opec) and strong employment data drove up inflation risk and interest rates.
There was also weakness in some of the sectors that had gained most during the "Trump bump", as investors had second thoughts about the viability of the president-elect's plans. The post-election rally could fade further this week if the rolling tide of populism continues in Italy.
Opec agreed to cut production by 1.2 million barrels of oil a day, the first such cut by the cartel since 2008. Oil futures rose by more than 10 per cent from their lows on the week, finishing above the US$50-per-barrel level, where many wells, even on the priciest US fields, become profitable. Opec pledged to revisit the cuts in a few months, hinting that US$50-a-barrel may not be tolerated.
Shares of Continental Energy, which operates wells on the high-cost oilfields of North Dakota, rose by more than 20 per cent from the lows of the week and were trading around US$60 - more than triple their levels from February.
Other sectors shrank in terror from the oil rally, however. "The 'new floor' on the oil price comes at a time when 'Trumponics' has altered inflation expectations in the US," said analysts at brokerage Jefferies.
For consumers, the end of the cheap petrol holiday is hardly cause for celebration. Airline shares and retailers lost some altitude after the Opec deal. Contracts for home purchases in the US rose in October but some economists warned that they may have reached a peak, as buyers appeared to rush in ahead of an up-tick in mortgage rates.
For other sectors, such as utilities and telecommunications, higher oil prices mean higher inflation, which means higher interest rates. Interest rates are anathema to these sectors; their share prices took flight when rates were low, because they were effectively the only game in town for retirees.
Opec may have inadvertently reopened the Treasury market to retirees. Bond yields rallied in the wake of the deal, as traders bet that the move upwards in oil would spread to other commodities and cause an up-tick in inflation.
In a good sign for the banking sector if not financial stability, Mr Trump nominated former Goldman Sachs banker, hedge-fund magnate and Hollywood producer Steven Mnuchin as Treasury secretary. Mr Mnuchin said his first order of business would be tax cuts and a rollback of Wall Street reforms. The 2010 Dodd-Frank bill, which placed curbs on speculation by big banks, was the principal government response to the 2008 financial crisis.
Democrats and groups such as Occupy Wall Street blamed loose regulation on Wall Street banks for allowing the global financial system to reach the precipice of outright collapse. Banks of all sizes have long complained that the regulations have hurt their businesses. Mr Mnuchin has taken up the banks' cause, vowing to review the entire law and he has already decided to "strip back" key provisions such as the prohibition on proprietary trading.
Fear could make an early appearance next week, however. Italian Prime Minister Matteo Renzi's government could fall if there's a landslide vote of "No" on the proposed referendum, as polls suggest there may be. If the ensuing general election is anything like the recent polls in Britain and the US, Italy could soon be ruled by the Five Star Movement, a populist party that has vowed to reexamine membership of the eurozone. And if Italy quits the eurozone, there won't be much of the euro left; of the 19 nations that use the single currency, only France and Germany have bigger economies.
Expect volatility this week arising from Italy's referendum.
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