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Oil prices rise, while stocks fall as Iran tightens its grip on the Strait of Hormuz
Oil prices rose 6% and stocks fell on Monday as Iran intensified its military campaign, attacking several ships in Strait of Hormuz?and?setting a UAE port of oil ablaze. Brent futures rose by $6.27 or 5.8% to $114.44 a barrel. U.S. West Texas Intermediate crude (WTI), however, rose $4.48 or 4.4% to $106.42. The move came after U.S. president Donald Trump announced over the weekend that U.S. Navy forces would open the strait, leading to the biggest escalation of the war since the ceasefire was declared. Since two months, the Strait of Hormuz has been seriously disrupted. It is through this strait that a fifth of all oil and gas transported by sea in the world normally passes. The Dow Jones Industrial Average?was down 1.13%. The S&P 500 was 0.41% lower. And the Nasdaq Composite fell 0.19%. The longer oil prices remain above $100 per barrel, the less the fiscal stimulus from the tax cuts that were passed in 2025 will be a stimulus and more likely to act as a shock-absorber, said Brock Weimer. MSCI's broadest?global share index outside Japan dropped 0.22%. German automakers in Europe weighed on regional equity after Trump announced on Friday that he would "raise tariffs" on European cars. The STOXX 600 index for the whole of Europe fell by 0.99%. The benchmark 10-year bond rate for the Euro Zone, Germany, increased 5 basis points, to 3.08%. London's markets were closed due to a public holiday. CENTRAL BANKS TURN HAWKISH AFTER OIL FANS INFLATION FEARS Oil-driven inflation has pushed bond rates higher and complicated global monetary policy outlook. Markets are no longer expecting the Federal Reserve to reduce rates this year and have started pricing in increases from the European Central Bank (ECB)?and Bank of England. Barclays, along with other brokerages, forecasted on Monday that the Fed would not ease policy in 2019. The Friday April payrolls report may further alter expectations. The yield on the benchmark U.S. 10 year notes increased?6 basis points to 4.438%. FOREX TRADERS ARE KEPT ON THE EDGE BY YEN VOLATILITY The currency markets were also unsteady, as traders closely watched for signs of a?Japanese Intervention to Support the Yen. In Asian trading, the dollar dropped sharply against yen before turning around. The Japanese yen last fell 0.04% against greenbacks at?157.12 each. Analysts think Tokyo could have intervened in the last week for around $35 billion. Roberto Cobo Garcia is the head of G10 'FX strategy' at BBVA. He said: "The case for intervention?is strong given the inflationary effect of a weaker yen through import prices, a U.S. Administration that is generally comfortable with such an action, and Japan’s abundant FX reserves." The Euro fell by 0.24% at $1.1692, while the Sterling fell by?0.29% at $1.3532. The dollar index (which measures the greenback in relation to a basket including the yen, the euro and other currencies) rose by 0.28%, reaching 98.44. On the commodity markets, gold dropped 2.13% to $4,515.27 per ounce.
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Commissioner says EU countries can better target their measures to reduce energy prices
Valdis Dombrovskis, European Economic Commissar Valdis Dombrovskis said at a Monday press conference that the European Union could do a better job of targeting measures to reduce energy prices to the most vulnerable sectors of the economy. The International Monetary Fund and the Commission have criticised the EU for adopting measures such as reducing VAT or excise taxes on fuel. This lowers prices for all consumers rather than those most affected, causing the biggest price drop. Dombrovskis, after a meeting of the?EU Finance Ministers, said that "our first assessment of measures taken by member states to date shows that they could be better targeted?at those most affected." He said, "Our room for maneuvering is already limited due to the higher debt and deficit levels and a more competitive interest rate environment. We also urgently need additional defense spending." We simply cannot afford to make the same mistakes again. He said that it is essential for any'support measures' to be temporary, targeted, and not increase the?aggregate demand for energy. Dombrovskis said that although individual countries could impose windfall tax on energy companies "if they so choose", the Commission would not recommend such a measure at the European Level. "We do not recommend any?EU initiative because the previous application of a?windfall?tax during the energy crisis in 2022 produced mixed results," Dombrovskis stated. (Reporting from Makini Brice and Jan Strupczewski, in Paris; Editing by Matthew Lewis).
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US Justice Dept. sues Minnesota to block climate change lawsuit
The U.S. Justice Department has filed a lawsuit to block Minnesota's long-running lawsuit that seeks?to hold Exxon Mobil and other oil industry participants accountable?for the harms caused by climate changes. The lawsuit was the latest in a long line of lawsuits filed by President Donald Trump to stop Democratic-led state governments from enforcing climate change laws and pursuing lawsuits against fossil fuel companies. Judges have recently dismissed ?two similar lawsuits that the Justice Department filed against Michigan and Hawaii, which are among the ?numerous states and local governments that have in recent years pursued climate-change-related investigations or lawsuits against fossil ?fuel producers. The Justice Department filed a new lawsuit against Exxon and Koch Industries, as well as the American Petroleum Institute. This lawsuit was brought by Minnesota Attorney General Keith Ellison in 2020?during Trump’s first term. The lawsuit accuses?defendants' of fraud and violating state laws by misleading Minnesotans regarding the climate change consequences of fossil fuels. The defendants have been fighting this case for many years and deny any wrongdoing. The Justice Department announced Monday's lawsuit citing an executive order Trump issued last year that directed it to take actions to stop the enforcement of state laws, and lawsuits which burden oil and gas production. In a press release, Associate Attorney General Stanley Woodward stated that "President Trump has promised to unleash American dominance in energy and Minnesota officials cannot undermine this directive by mandating their woke climate preferences as the 'uniform policy for our nation. The Justice Department argues Minnesota's lawsuit is a violation of the U.S. Constitution, as it seeks to regulate greenhouse gases emissions that are exclusive to the federal government. In a press release, Ellison pledged to?seek the dismissal of "the frivolous and meritless lawsuit". He said: "The American people deserve a Department of Justice who fights for them, and it is a great shame that Trump's DOJ prefers to sell us out in order to Big Oil." (Reporting and editing by Susan Heavey)
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Goldman warns that global oil reserves are approaching an eight-year low. The speed of depletion is a cause for concern
Goldman Sachs warned on Monday that global oil stocks were approaching their 'lowest level in 8 years.' The speed of depletion was a growing concern, as the Strait of Hormuz remains restricted. The oil prices rose by about 6% after Iran attacked several ships in the Strait of Hormuz, and also set a UAE oil port on fire. This was the largest escalation of violence since President Donald Trump tried to use the U.S. Navy for freeing up shipping four weeks ago. Bank?estimated that total global oil stock stood at 101-days of global demand, and could drop to 98-days by the end May. Goldman said that while total global stock levels are unlikely to reach minimum operational levels by summer, the speed of depletion in some regions and products is worrying. Bank estimates that commercially refined 'products have been reduced from a stock of?50 DoD prior to the U.S. Israel war against Iran, down to 45 % DoD today. The bank also stated that the buffers for easily accessible refined products were rapidly approaching very low levels. (Reporting by Ishaan Arora in Bengaluru; Editing by Deepa Babington)
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Gold drops 2% as Middle East fears support the dollar and keep inflation concerns in focus
Gold prices fell 2% on monday as tensions between the U.S. and Iran boosted dollar values. This also fueled inflation fears that kept interest rate expectations high. By 2:05 pm, spot gold had fallen 2% to $4,523.23 an ounce. ET (1805 GMT). U.S. Gold Futures closed 2.4% lower, at $4.533.30. Bart Melek is global head of commodity strategies at TD Securities. He said that the latest news did not give the market any confidence in the future. It also raised the specter inflation issues and sent a hawkish signal to the market regarding interest rates. Iran has attacked several ships and set fire to a UAE oil terminal in the 'Strait of Hormuz', after President Donald Trump tried to free up shipping by using the U.S. Navy. This was the biggest escalation of the war since the ceasefire declaration 'four weeks ago. The U.S. Dollar?firmed up and Brent prices rose more than 5%. The dollar price of metals increases when the U.S. dollar is stronger. The soaring prices of energy have heightened inflation fears and boosted bets on central banks keeping interest rates high for longer. Barclays has joined the growing list of brokerages that bet against any policy easing by the U.S. Federal Reserve in this year. The Fed's most divided decision in over 20 years was to leave rates unchanged last week. This was due to deepening concerns about higher energy prices affecting the economy. This week, key data will include the ADP Employment Report and the April Payrolls Report. Gold is a good hedge against inflation, but it's not attractive in an environment of high rates because it offers no return. "I see a strong level of support for gold around $4,200. I think that there will be broader issues in the later part of this year which could support gold prices. Melek stated that uncertainty and rate hikes could push traders to sell positions in the short term. Spot silver dropped 3.2% to $72.95, while platinum fell 1.7% to $ 1,955.95 and palladium lost 2.9% to $1 481.00.
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Oil prices rise, while stocks fall as Iran tightens its grip on the Strait of Hormuz
Oil prices rose by 5% Monday, and stocks dropped as 'Iran escalated their military campaign. Drones were used to strike a 'UAE oil port and a South Korean vessel was hit in the Strait of Hormuz. Brent futures gained $6.43 or 5.9% to $114.60 while U.S. West Texas Intermediate crude (WTI), rose 4% to $100.91. The move came after U.S. president Donald Trump announced over the weekend that U.S. Navy will force the strait to open. Since two months, the Strait of Hormuz has been seriously disrupted. It is through this strait that a fifth of all oil and gas transported by sea in the world normally passes. The attacks on Monday reinforced fears that a military effort to reopen the Strait of Hormuz could spark a wider confrontation. The Dow Jones Industrial Average fell 1.03%. The S&P 500 was 0.53% lower, and the Nasdaq Composite fell 0.41%. The longer oil prices remain above $100 per barrel, the less fiscal stimulus the tax cuts that were passed in 2025 will be. MSCI's global index outside Japan fell as well, reversing gains made earlier after South Korean tech stocks closed over 5 percent higher. German automakers in Europe weighed on regional equity after Trump announced on Friday that he would increase tariffs on European cars and trucks. The STOXX 600 pan-European index dropped by 0.99%. The benchmark yield for the eurozone bloc, Germany's 10-year bonds, increased 5 basis points to 3,08%. Bond yields are inversely related to prices. London's markets were closed due to a public holiday. CENTRAL BANKS TURN HAWKISH AFTER OIL FANS INFLATION FEARS Oil-driven inflation has pushed bond rates higher and complicated global monetary policy outlook. The markets no longer expect that the Federal Reserve will cut rates in this year and they have already begun to price in rate increases from the European Central Bank as well as the Bank of England. Barclays joined other brokerages on Monday in predicting that the Fed won't ease policy this year. The Friday April payrolls report may further alter expectations. The yield on benchmark U.S. 10-year bonds rose 7.6 basis point to 4.454%. FOREX TRADERS ARE KEPT ON THE EDGE BY YEN VOLATILITY The currency markets are also a bit uneasy, and traders are 'closely monitoring for signs of Japanese intervention in order to support the yen. In Asian trading, the dollar plunged against the yen before turning around. The Japanese yen last fell 0.11% against the greenback, closing at 157.25 dollars. Analysts think Tokyo could have intervened in the last week for a total of?35 billion dollars. Roberto Cobo Garcia is the head of BBVA's G10 FX Strategy. He said that intervention was justified, due to the inflationary effect of a weaker yen through import prices. The U.S. government also seems comfortable with this action. The euro dropped 0.3% to 1.1685 while sterling fell 0.34% to 1.003526. The dollar index (which measures the greenback in relation to a basket including the yen, the euro and other currencies) rose by 0.35%, reaching 98.50. On the commodity markets, gold dropped 2.22% to $4,511.66 an ounce.
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Eni has restarted Venezuelan oil lifting as payment in kind for gas
Eni said on Monday that it would resume lifting Venezuelan crude in April as payment-in kind for gas produced?in Venezuela. The Italian energy group added?that?the move?would?allow?it to?recover?old receivables?from Caracas. Payments stem from an agreement between Venezuelan oil firm PDVSA, and Cardon IV - a joint venture owned equally by?Eni and Spain’s Repsol - that produces gas in the Perla field. The deal was signed in March. Eni stated that payments for gas are made in kind, and the first shipment from Venezuelan crude oil was lifted in April. Eni announced that the lifting of oil cargoes has resumed as U.S. sanctions against Venezuela have been slowly eased by the Office of Foreign Assets Control of the U.S. Treasury since January. Eni said that the new regulatory framework allowed it to continue to operate in Venezuela and, on a medium-term basis, assess whether or not to 'intensify' its activities. Eni owed PDVSA around $3.3 billion at the end of last fiscal year, which included?about $1 billion in interest. Eni's?balanced sheet reported that the recoverable value of the receivables related to its Venezuelan operations was 880 million euro at the end 2025. (Reporting and editing by Francesca Landini)
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US extends protection to Venezuelan-owned Citgo against creditors
According to a statement posted on the website of the U.S. Treasury Department on Monday, "the United States extended a license protecting Venezuelan-owned refiner Citgo Petroleum against 'creditors until June '19." The Office of Foreign Assets Control issued the general license to boost investment in Venezuela and increase oil production. The U.S. also strengthens its protection of Houston's?Citgo, and its overseas parent companies which are the crowning jewels of Venezuela's foreign assets. Citgo is America's eighth largest refiner. The previous OFAC licence, issued in March, was set to expire on May 5. Citgo will be acquired by Amber Energy, a hedge fund affiliate, after a Delaware court ordered the sale of PDV Holding last year to pay billions to Venezuelan creditors. For the sale to go through, the auction winner must still have OFAC sign off on the order and the protection licence lifted. In an opinion piece that appeared in the Wall Street Journal, Amber officials promised last month to invest $11 billion in Citgo Petroleum in the event OFAC released the refiner?to Amber. These investments include adding 125,000 barrels of crude oil per day to the Corpus Christi refinery in Texas. Washington has eased sanctions against Venezuela ever since U.S. troops 'captured President Nicolas Maduro 'in January. The U.S. government 'took control of the OPEC nation’s oil sale proceeds through a trust fund. (Reporting and editing by Michelle Nichols, Alistair Bell and Alistair Bell; Daphne Psaledakis, Timothy Gardner and Ismail Shakil)
No rate cuts if oil prices rise? No problem for US stocks
Investors say that the U.S. Stock Market is back where it was six weeks ago when the Iran War began. This is because they bet on a short-term conflict. What if this thinking is incorrect? The S&P 500 benchmark's round-trip comes despite a dramatically different investing environment compared to February?27. This was just before U.S. and Israeli military strikes started the Middle East?"conflict". Oil prices have risen by about 40%. The fear of inflation has driven up the benchmark yields on?Treasuries. These same concerns have led the markets to rule out interest rate cuts in this year.
If they continue, all of these factors can affect the performance of stocks.
There's a lot complacency about this. Brad Conger is the chief investment officer of Hirtle Callaghan. The company manages endowments and other foundation assets. "I don't think we are as well off as we were on February 27th. And we're paying the same price."
Investors seize on what they perceive as a solid economy, and in particular a positive outlook for corporate profit that has improved since the start of the war. Investors are aware of the stock market’s resilience in this three-year bull market, and they don't want to miss out on any rallies.
WAR RISKS VIEWED A FLEETING S&P 500 has recovered after initially dropping after the crisis started. In late March, the index had fallen over 9% since its all-time January high. This was close to a 10% drop that would indicate a correction. S&P 500 closed Monday up 0.1% from the start of the war, and only a little over 1% off its record high. The S&P 500 was up 1% for the day on Tuesday. The optimism about a possible resolution increased after a ceasefire agreement was reached last week. Investors were bracing themselves for the possibility of war-related developments that could cause asset volatility.
Peter Tuz of Chase Investment Counsel Corp. said that the market is looking at "temporary risk" which will be resolved in a short time, as opposed to a new regime of higher energy prices, interest rates, and inflation.
OIL HIGHER NOW OR LESS LATER?
Oil prices are a major factor in the performance of the stock market. Oil prices that continue to rise will increase costs for both businesses and consumers.
Angelo Kourkafas is a senior global investment analyst at Edward Jones. He said that the markets are showing that oil prices will be moderated by the end of the year. According to LSEG, the front-month contract of U.S. Crude is hovering around $95 a bar, and the December contract at $77.
Kourkafas stated that the markets now see energy disruptions as being near-term. "There's this idea that there are a lot near-term disruptions, but they're temporary," Kourkafas said. Once we get past this, we will return to the economic resilience we enjoyed before. Oil prices have already affected U.S. inflation. The Consumer Price Index rose in March at the highest rate in almost four years.
Investors have lowered expectations of Federal Reserve rate reductions due to inflationary concerns. This was a major source of optimism for U.S. stocks heading into the new year. According to LSEG data, as of Tuesday, Fed funds futures had priced in only 6 basis points of easing for December. This is less than a standard 25-basis point cut. Prior to the war, roughly two such quarter-percentage-point cuts had been expected by December.
The rise in Treasury yields is also due to oil-driven inflation. The benchmark 10-year Treasury rate was around 4.3% last, up from 3.96% in February.
The higher benchmark yields can have a negative impact on equity performance. This could be due to the fact that they translate into higher borrowing costs, both for consumers and companies.
BUY STOCKS FOR OUTLOOKED EARNINGS
Since the start of the war, estimates for U.S. company profits have increased. According to LSEG IBES, S&P 500 companies will increase their earnings by 19% between 2026 and 2015, compared to an estimated 15% increase before the war.
Stocks have become more attractive due to the increased earnings forecast. According to LSEG Datastream, the price-to earnings ratio for S&P '500 was?20.4, down from a high of over 23 at the end of October.
Chris Fasciano is the chief market strategist of Commonwealth Financial Network. He said that estimates are continuing to rise despite the increase in oil prices. "More appealing valuations and higher earning estimates make me feel okay about the background."
In the weeks to come, companies will report their first quarter results.
Tuz stated that people are expecting a huge increase in earnings from all companies this year. It's too early to tell if the number is accurate or not.
(source: Reuters)