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As Middle East peace hopes fade, stocks fall and oil rallies

Wall Street's major equity indexes fell on Tuesday, and the dollar rose as U.S. inflation increased and oil gained for the third consecutive day. Hopes for a Middle East Peace Deal to allow ships through?the Strait of Hormuz faded.

In April, U.S. Consumer Prices (CPI), rose sharply for the second consecutive month. This resulted in the largest increase in annual?inflation? in nearly three years. It boosted expectations that the Federal Reserve will keep interest rates the same for some time.

Oil prices have risen due to the U.S. War on Iran. This has led to higher gasoline, jet fuel and diesel. Economists predict that there will be a second round of effects in coming months.

The data came after U.S. president Donald Trump announced on Monday that the ceasefire agreement with Iran, which had been in place for a month, was "on life-support" because of Tehran's response when the U.S. proposed an end to the war.

Brent crude closed at $107.77 a barrel, an increase of 3.42%.

There have been rumors that the conflict in Iran could flare up again. Emily Roland, Manulife John Hancock Investments' co-chief investment strategy, said that the rising oil prices were a result of this. She also noted that rising Treasury yields put pressure on stocks. Some of this was on the back of the CPI report that came out this morning, which was actually pretty tame beneath the surface.

Investors had hoped for progress in the Iran conflict following a meeting between Trump, and Chinese President Xi Jinping. But Trump has said he doesn't think he needs China's assistance to end the war.

"China is unlikely to change its stance in the future, as it has avoided any involvement." Jack Janasiewicz is the lead portfolio strategist for Natixis Investment Management Solutions.

The MSCI index of global stocks fell by 4.97 points or 0.45% to 1,103.32.

The STOXX 600 pan-European index had earlier finished lower by 1.01%.

Wall Street saw the Dow Jones Industrial Average rise 56.09 points, or 0.1%, at 49,760.56. The S&P 500 dropped 11.88 points, or 0.1%, at 7,400.96, and the Nasdaq Composite declined 185.92, or 0.71% to 26,088.20. The PHLX semiconductors index dropped 3% on Wednesday after reaching a record-high on Tuesday.

Manulife's Roland stated that the fall in semiconductor stocks affected sentiment. He also pointed out a decline in South Korean technology shares, "which had been on a tear in recent months."

The idea was floated by Kim Yong Beom, the presidential policy advisor. He argued on social media that the excess earnings of the AI era should be distributed to all citizens. South Korea would be the first to do this.

The KOSPI in Seoul retreated after hitting a record low just below 8,000 point, and finished 2.3% lower. This pulled down other regional markets.

RISE IN GLOBAL BOND Yields

On the bond market U.S. Treasury rates rose due to concerns over continued disruptions of energy supplies in the Middle East, and data that showed rising U.S. Consumer Prices.

The yield on the benchmark U.S. 10 year notes increased 4.9 basis points from 4.412%, late Monday. Meanwhile, the 30-year bond rate rose 3.8 basis to 5.0253%.

The yield on the 2-year bond, which is usually in line with expectations of interest rates for the Federal Reserve, increased 4.2 basis points, to 3.989%.

The rise in global bond yields was largely due to a selloff of gilts as a result of the increasing pressure on British Prime Minister Keir starmer who, on Tuesday, refused to resign.

He said he'd "get on with the governing" in spite of a "destabilising 48 hours" where calls to set out a timeline for his departure grew after he suffered heavy losses at local elections.

The UK 10-year gilt rate rose by 0.4 basis points to 5.107%, while the 2-year gilt rate fell by 0.1 basis point to 4.551%.

Sterling fell 0.54%, to $1.3533. It was one of the worst performing major currencies for the day.

The U.S. Dollar advanced for the second consecutive session, after economic data and amid uncertainty about the durability of the U.S. - Iran ceasefire.

The dollar index, which measures greenbacks against a basket including yens and euros, rose by 0.35%, to 98.31. However, the euro fell 0.38%, to $1.1737.

The dollar gained 0.31% against the Japanese yen to reach 157.64.

Gold prices are under pressure due to a combination of inflation fears and fading hope for a peace agreement.

Spot gold dropped 0.43% to $4.713.93 per ounce. U.S. Gold Futures dropped 0.4% to $4700.00 per ounce. Reporting by Sinead carew in New York; Amanda Cooper in London; Tom Westbrook, in Singapore; Jihoon lee, in Seoul. Editing by Alison Williams and Deepa Babington.

(source: Reuters)