Stan Choe
Oil prices climbed again because of the war with Iran, tightening their grip on the global economy and sending stock markets lower around the world.
Brent crude, the international standard, briefly rose above $US119 ($168.70) per barrel in the morning before pulling back to $US110.90, which is still a 3.2 per cent rise from the prior day. A barrel of benchmark US crude added 2.2 per cent to $US98.40 after Iran intensified its attacks on oil and gas facilities around the Persian Gulf in response to an Israeli attack on an important Iranian natural gas field.
The attacks added to fears that fighting may knock out production of oil and gas in the Gulf for a long time, which would mean high prices could last a while and cause inflation to rip higher around the world.
On Wall Street, the S&P 500 fell 0.7 per cent and is on track for a fourth straight losing week, which would be its longest such streak in a year. The Dow Jones was down 418 points, or 0.9 per cent, and the Nasdaq composite was 0.8 per cent lower. Stock indexes dropped 2.8 per cent in Germany and 2.3 per cent in the United Kingdom.
The Australian sharemarket is set to decline, with futures at 4.45am AEDT pointing to a loss of 52 points, or 0.6 per cent, at the open. The ASX tumbled 1.7 per cent on Thursday. The Australian dollar was trading at US70.56¢ at 5.08am AEDT.
President Donald Trump and countries around the world have made moves to stem the spike in oil prices, but they’re mostly short-term fixes when markets want to see less risk for oil and gas fields around the Gulf and a clearance of the Strait of Hormuz off Iran’s coast, where a fifth of the world’s oil typically sails.
Worries are so high about oil prices that traders are now even betting on a slim chance that the Federal Reserve may have to hike interest rates this year. It’s a dramatic turnaround from before the war, when traders were betting heavily that the Fed would cut rates multiple times this year.
Cuts to rates would give the economy and prices for investments a boost, and they’re something Trump has angrily been calling for, but they would risk worsening inflation. The Fed on Wednesday decided to hold off on cutting interest rates at its latest meeting, and traders found comments from Chair Jerome Powell discouraging about the possibility for cuts in 2026.
Now, traders are betting on an 8 per cent chance the Fed could hike its main interest rate by the end of the year and an 80 per cent chance that it will at least hold steady, according to data from CME Group. Just a month ago, those same traders were betting on a 74 per cent probability of two or more cuts.
That drove Treasury yields higher, and the two-year Treasury yield touched its highest level since the summer.
The more widely followed 10-year Treasury yield rose to 4.28 per cent from 4.26 per cent late on Wednesday, up from just 3.97 per cent before the war with Iran started. Earlier in the day, the Bank of Japan, the European Central Bank and the Bank of England held their own interest rates steady.
Besides the threat of higher inflation, a couple of solid reports on the US economy also helped to lift Treasury yields. One said fewer US workers applied for unemployment benefits last week, when economists were expecting a slight rise. Another said growth for manufacturing in the mid-Atlantic area unexpectedly accelerated.
Higher Treasury yields have already sent rates for mortgages and other kinds of loans upward, and a report on Thursday showed sales of new US homes unexpectedly weakened in January.
Higher Treasury yields also grind down on prices for all kinds of investments, from stocks to crypto to gold. Gold sank 6.1 per cent to $US4,598.80 per ounce and touched its lowest price since early February. Silver fell even more and dropped 9.3 per cent.
Stocks of companies that mine such metals fell to some of Wall Street’s sharpest losses. Newmont dropped 8.6 per cent, and Freeport-McMoRan sank 4.8 per cent.
Micron Technology fell 3.6 per cent even though it reported a blowout quarter of much higher profit and revenue than analysts expected. It gave back some of its big gain for the year so far, which came into the day at nearly 62 per cent because of a worldwide shortage for computer memory.
Helping to limit Wall Street’s losses was Rivian Automotive, which jumped 2.7 per cent. It announced a partnership where Uber will invest up to $US1.25 billion ($1.8 billion) in the company and expects to buy 10,000 autonomous robotaxis. Uber Technologies fell 1.2 per cent.
