Oil prices jumped, the
U.S. dollar lifted from lows and stock markets wobbled on Monday
as rising tension in the Middle East kept shipping in and out of
the Gulf to a bare minimum, though traders were holding out hope
for a resolution.
The ceasefire in the Iran war, due to run until Tuesday, was
in doubt after the U.S. seized an Iranian cargo ship and
Tehran’s top military command vowed to retaliate.
Iran has re-imposed its de facto closure of the Strait of
Hormuz, though Kpler data showed that more than 20 vessels
carrying oil products, metals, gas and fertiliser passed through
it on Saturday, the busiest day for the chokepoint since March
1.
Brent crude futures jumped about 6% to $96 a barrel
in early Asia trade. The dollar, which sold off sharply on
Friday when the strait briefly opened, rose slightly.
S&P 500 futures fell around 0.7%, a modest move
considering the index notched a record closing high on Friday.
Asia-Pacific markets were mixed, with Australia’s S&P/ASX 200
down 0.5% and Japan’s benchmark Nikkei up 0.7%.
Bond markets, which rallied on Friday, retreated.
“The headlines look bad; it looks like there’s disagreement
… which has led to a little bit of re-escalation,” said Damien
Boey, portfolio strategist at Wilson Asset Management in Sydney.
“But I think, ultimately, both sides want to be able to do a
deal – that’s part of the reason why the market’s optimistic and
not selling off too much.”
Iran rejected new peace talks with the U.S., its state news
agency reported on Sunday, hours after U.S. President Donald
Trump said he was sending envoys for talks in Pakistan and would
launch new strikes on Iran unless it accepts his terms.
FOCUS ON HORMUZ
In forex news, the euro was down 0.1% at $1.1735 and
the yen eased around 0.3% to 159 per dollar, while the
Australian and New Zealand dollars fell slightly.
Bonds likewise partially retraced Friday moves, with
benchmark 10-year U.S. Treasury yields, which had fallen 6.5
basis points on Friday, rising by 3.2 bps to 4.276%.
Investors sold fixed income assets through March in
anticipation of higher oil prices driving inflation – something
they have tempered a little in recent weeks.
“Our base case (AKA guess) is still resolution to the war.
Trump is still focused on November midterm elections,” said Paul
Chew, head of research at Singapore’s Phillip Securities in a
note to clients.
Wall Street indexes touched record highs on Friday,
supported by expectations of robust first-quarter earnings, the
bulk of which come this week. China is expected to hold
benchmark lending rates steady on Monday.
British inflation data, U.S. retail sales and European
purchasing managers’ index figures are due later in the week,
though much of markets’ focus will be on Gulf shipping.
“The critical barometer of geopolitical risk has been
distilled into one data point: The number of ships transiting
the Strait of Hormuz,” said Bob Savage, head of markets macro
strategy at BNY.
“Peace talks matter, but the immediate focus is on oil and
other supply shortages driving inflation.”