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Oil prices rise and global stocks fall as bonds falter

The global share market fell on Monday, as new drone attacks in the Gulf drove oil prices and bond rates higher. This stoked inflation concerns at a time when Nvidia's earnings will test the tech bullrun. In the United Arab Emirates a drone attack caused a fire in a nuclear power station. Saudi Arabia also reported intercepting 3 drones.

The Strait of Hormuz, which is vital to the oil and gas industry in the world, remains closed for all but a small amount of shipping. This is because Tehran wants to formalise control of this waterway.

George Lagarias is the chief economist of Forvis Mazars. He said that "right now, the markets are in panic mode as they price the possibility of the Strait of Hormuz remaining closed." Brent crude was up 1.2% to about $110.55 per barrel while U.S. oil rose 1.4% to $102.48. Importantly, September futures traded above $100 while December reached a contract high. Markets were bracing for a prolonged shortage.

G7 finance minsters will meet in Paris to discuss the Strait of Hormuz, and the critical raw material supply. However, geopolitical differences could test the group's unity.

On Monday, the global bond markets were again hit by worries that energy prices would continue to rise and drive inflation and stunt economic growth. Yields for?U.S. The yield on 10-year bonds reached a record high of 4,631% after a surge of 23 basis points in the previous week. The yield on 30-year bonds has reached 5.159%, after a jump of 18 basis points in the last week.

Japan's 10-year bond yield reached a level not seen since 1996, as the government proposed to issue new debt to fund an extra budget planned to cushion the economic impact of the Iran War. Germany's 10-year yield on bonds rose to a new high not seen for 15 years.

Lagarias of Forvis Mazars stated that "as long as it is not a credit-event, and we do not have any evidence to call it a credit-event, I would also be surprised if this caused a large rout in equity markets as well."

It can be a reason for some investors not to invest, but it would surprise me if there was a real correction as a result of the bond volatility.

STOCKS ARE mainly lower

The rising yields increase borrowing costs, and a discount is applied to future earnings of companies. This puts pressure on stock prices. European stocks fell 0.4%. The major markets in Frankfurt, London and Paris both edged upwards. S&P futures dropped 0.5%, while Nasdaq's futures also fell 0.5%. Overnight, Japan’s Nikkei fell 1% after falling 2% from record highs last week. South Korean stocks increased 0.3% as Samsung Electronics rose almost 4% following a partial court injunction to stop a strike. MSCI's broadest Asia-Pacific share index outside Japan fell 0.6%. Chinese blue-chip stocks fell 0.5% as disappointing economic data weighed on the market.

AI, RETAIL EARNINGS TO TEST FOR THE BULL RUN

Earnings from Nvidia, the world's largest company, are due on Wednesday. Expectations for this company are sky-high.

Nvidia's shares have risen 36% from their March lows, while the Philadelphia SE Semiconductor Index has soared by more than 60% amid a fervent demand for chips, as tech companies invest massively in?building AI-related infrastructure.

This week, Walmart and other retailers will also release their results, providing an insight into the consumer's reaction to high energy prices.

Risk aversion in forex markets has been a factor that has helped the dollar as the most liquid currency. The U.S. also has a significant energy export, which gives it an advantage relative to Europe and much of Asia. The euro, which lost 1.4% in the last week, was unchanged at $1.162925. The pound rose slightly to $1.33540 after a 2.3% drop last week due to 'political instability' in Britain, which added pressure on the gilt markets. Dollar held steady against the yen, at 158.94. Only the threat of Japanese interference prevented another speculative attack on the 160.00 chart. Gold was nearly flat at $4,538.19 per ounce in the commodity markets. It has received little support as a safe-haven or a hedge against inflation risk. Reporting by Samuel Indyk, Wayne Cole and Sharon Singleton; editing by Gus Trompiz and Sonali Desai

(source: Reuters)