Markets roiled by oil price spike, Portugal woes

LONDON — Financial markets were roiled yesterday as Egypt's unfolding political crisis pushed the price of oil to its highest level in more than a year and Portugal's government teetered on the edge of collapse.

While the benchmark New York oil price rose above $100 a barrel for the first time since May 2012, stocks around the world were piling up the losses, particularly in Portugal, where the main PSI stock index was trading 5.4 percent lower after two leading Cabinet members quit the government.

The interest yield on the country's benchmark 10-year bond also spiked over a percentage point higher to 7.70 percent at one point before dropping back to 7.28 percent. Even so, it's a clear signal that investors are fretting about the future of the bailed-out country and its efforts to get a handle on its debts. There are fears that other Cabinet members will quit over the government's austerity program and that may signal early elections and ensuing uncertainty.

"It's all about Portugal midweek where political pressures are breaking investor spirit around the world," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co.

Among the key indexes in Europe, the FTSE 100 index of leading British shares was down 1.6 percent at 6,206 while Germany's DAX fell 1.5 percent to 7,792. The CAC-40 in France was 1.4 percent lower at 3,692.

Investors, particularly in Europe, are clearly worried that Europe's debt crisis, which has been dormant of late, may be about to erupt again. Over recent months, it has barely been a driver in markets as the focus of attention turned toward monetary policy developments in the US and Japan.

"It looks as if we could be headed for another summertime crisis in the eurozone," said David Madden, market analyst at IG.

In the US, trading was a lot calmer than in Europe — the Dow Jones industrial average was down 0.1 percent at 14,923, while the broader S&P 500 index fell 0.3 percent to 1,609. Wall Street will close at 1 p.m. on yesterday ahead of the Independence Day holiday on Thursday and will re-open Friday.

Helping to shore up sentiment in the US was the 188,000 increase in private sector jobs during June, as reported by the ADP payroll services company. That was slightly better than expected and cemented expectations that Friday's official figures will show a 175,000 improvement for the month. That's a solid gain but not necessarily enough to make the US Federal Reserve start reining in its monetary stimulus just yet.

For stocks, that may be the best of both worlds — though the US economy is growing, the liquidity provided by the Fed is likely to remain in place at least through the summer.

Weekly jobless claims, which showed a 5,000 drop to 343,000, echoed the ADP's findings that the US labor market continues to improve gradually.

Following the US, data, the dollar was trading steadily against the euro, which was flat at $1.2980.

Investors were also keeping a close watch on the oil price as Egypt's president, Mohammed Morsi, defied calls to resign despite the demands of millions of protesters and a threat by military to suspend the constitution, disband parliament and install a new leadership.

Egypt is not an oil producer but its control of the Suez canal — one of the world's busiest shipping lanes, which links the Mediterranean with the Red Sea — gives it a crucial role in maintaining global energy supplies.

As a result, the benchmark New York rate has edged up this week and was trading a further $2.04 at $101.65 a barrel.

"The primary reason behind the rally is undoubtedly concerns that the ongoing political turmoil in Egypt may disrupt oil supplies through the Suez Canal," said Fawad Razaqzada, technical analyst at GFT Markets.

Earlier, Asian markets also closed lower with Japan's Nikkei 225 down 0.3 percent to 14,055.56 as the yen rallied against the dollar — a rising yen is a sign investors are wary but it makes Japanese goods more expensive in export markets. The dollar was 1.1 percent lower at 99.74 yen.

Elsewhere in Asia, Hong Kong's Hang Seng shed 2.5 percent to 20,147.31 while Seoul's Kospi fell 1.6 percent to 1824.66. In China, the Shanghai Composite lost 0.6 percent to 1,994.27 following disappointing manufacturing data.