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Oil prices rise on US-Iran strikes; stocks fall ahead of Big Tech results

Oil prices rise on US-Iran strikes; stocks fall ahead of Big Tech results
Oil prices rise on US-Iran strikes; stocks fall ahead of Big Tech results

The oil price rose to its highest level in six weeks?on Wednesday, as U.S. and Iran exchanged strikes, further endangering energy shipping across the Middle East. Meanwhile, U.S. stocks were flat before?important Big Tech earnings. Brent crude prices last rose around 3.5%, to $94 a barrel. This was the highest since early June. A brief detente that existed between the U.S., Iran and other countries ended in early this month. This has once again restricted tanker movements through the Strait of Hormuz. Donald Trump, the U.S. president, threatened to attack Iran's infrastructure again on Wednesday. The war, which has lasted for nearly five months, has led to a global shortage of food and fuel. This has fueled inflation in many countries. The threat of an attack by the Houthis, a group aligned with Iran in Yemen, on another major artery in Middle East - the Red Sea - could cause shipping disruptions to worsen.

Following the Houthi's threat, four oil tankers transporting Saudi crude from the Middle East to Asia changed course in the Bab el-Mandeb Strait. Closing both Hormuz Strait and Bab el-Mandeb Strait would disrupt the shipping routes of more than 25% of the world’s oil and natural gas. Analysts said that clearing both of these logjams could put a strain on the U.S. Military.

Sameer Samana is the head of global equity and real assets for the Wells Fargo Investment Institute. He said that higher?oil price are the most significant macro-risk in the near term. "Escalating Middle East conflict has pushed crude oil prices higher, raising fears that inflation may'reaccelerate' and delay rate relief. The Dow Jones Industrial Average rose 0.1% on Wall Street. Meanwhile, the S&P 500 remained unchanged, and the Nasdaq Composite fell 0.3% due to weakness in chip stocks. Indermit Gil, World Bank's chief economist, said that escalating hostilities may reignite inflation and drive interest rates higher, while reducing global growth from 2.9% to 1.3%.

ALPHABET STARTS TECH EARNINGS After Wednesday's closing bell, the?stock market will focus on earnings from Alphabet. The company is under increased scrutiny for its delayed launch of an AI model. Tesla is expected to report their first quarterly cash loss in more than two years. Micron Technology, Nvidia and other chip stocks, which have driven this year's AI rally, saw gains of 0.25 and 3.2%, respectively. In recent months, shares of hyperscalers were under pressure due to concerns about rising capex.

John Plassard is the head of investment strategy for Cite Gestion. He said that even the slightest doubts about the monetization or return of infrastructure investments could put into question what has been driving the market rally in the last two years. Trump's new tariff announcements have also increased uncertainty. He said that all generic drugs imported into the U.S. would be subject to a tariff of 100% starting in August 2028. The rate will rise to 200% one year later. This week, the administration announced that it would impose 50% tariffs on certain Canadian goods. The MSCI All-World Index was slightly higher for the day as Europe's STOXX 600 increased 0.6%.

YEN BURSTS OFF 40 YEAR LOWS Investors weighed up measures that officials might use to stabilize the currency. Satsuki Katayama, the Japanese Finance Minister, said that the government is ready to take "decisive actions" in currency markets if necessary. However he refused to comment on specific levels of foreign exchange. After four consecutive daily gains, the dollar fell from its one-week high.

Central bankers are also becoming more cautious when predicting monetary policy due to the rising cost of energy. The European Central Bank will announce its interest rate decision on Friday, while the U.S. Federal Reserve is due to make a decision next week.

LSEG data show that both central banks will likely?keep borrowing costs at the same level this month. However, traders are expecting borrowing costs to increase by 25 basis points in the U.S. as well as the eurozone by the end the year. After reaching a two-month peak on Tuesday, the yield on a 10-year Treasury bill in the United States rose by 2.85 basis points. Later in the day, the Treasury will auction 13 billion dollars in 20-year bond. Reporting by Lawrence Delevingne and Gregor Stuart Hunter; Editing by Amanda Cooper Anil D'Silva Jan Harvey David Gaffen Rod Nickel

(source: Reuters)