US and European stock index futures rose after crude oil gave up part of its early surge as President Donald Trump raised pressure on nations to help reopen the Strait of Hormuz and said the US was talking to Iran.
Contracts for the S&P 500 Index advanced 0.5 per cent, set for their first advance in five days, as Trump commented on the talks, although the Islamic Republic said it hadn’t asked for talks or a ceasefire. The MSCI All Country World Index — the broadest measure of global equities — was little changed, following three days of declines. Asian shares edged up.
Boosting investor sentiment mood was a decline in the dollar, with Bloomberg’s gauge of the greenback falling 0.3 per cent.
Brent traded around $104 a barrel after earlier climbing as high as $106.50 following US strikes on military targets on Kharg Island, the terminal that handles almost all of Iran’s oil exports. West Texas Intermediate traded below $100 a barrel.
Comments from Iranian Foreign Minister Abbas Araghchi that the Strait of Hormuz was only shut to ships from “enemies” helped soothe some nerves. Two tankers carrying liquefied petroleum gas to India sailed through the strait — a route that normally handles about a fifth of the world’s oil supplies.
The US strike on Kharg Island had threatened to inject fresh volatility into energy markets already grappling with some of the biggest swings in oil in decades. Oil’s surge since the war began has rippled across asset classes, pushing Treasury yields higher on inflation concerns, boosting the dollar and weighing on global equities.
“The market is trying to stabilize, but it is not one that has turned optimistic,” said Charu Chanana, chief investment strategist at Saxo Markets. “Equities may welcome any sign that Hormuz could be reopened, but with further strikes still being threatened and diplomacy still patchy, conviction is low and positioning is likely to stay very twitchy.”
Trump said late Friday that US forces struck military targets on Kharg Island and warned attacks may expand to energy infrastructure if Tehran interferes with transit through the Strait of Hormuz. Traffic through the waterway has nearly halted since the war began, and Iran’s supreme leader said the strait should remain shut if it continues.
The US president also urged other countries to send warships to keep open the Strait of Hormuz but offered no specifics or commitments from the US side. He said he hoped China, France, Japan, South Korea and the UK would take part.
“A lot of the geopolitical premium was already priced last week, so traders seem to be waiting for clearer signs of actual supply loss before pushing prices materially higher,” said Haris Khurshid, chief investment officer at Karobaar Capital LP in Chicago. After the attack on Kharg, it “looks like the market is pricing disruption rather than a full supply shock,” he said.
Trump’s call for global assistance or “burden sharing” to keep open the strait is consistent with his agenda of the US pushing the world to share more of the costs of energy and sovereign security, according to JB Drax Honore.
What Bloomberg strategists say
“The US dollar and oil futures are a touch lower, along with a positive opening for Korean stocks, as the mood brightens in Asia. However, investor conviction remains low, with short-term moves likely to stay erratic as traders jump on whatever headlines drop in relation to the Middle East.”
— Mark Cranfield, MLIV strategist. For full analysis, click here.
In other corners of the market, US Treasuries gained, with benchmark 10-year yields dropping two basis points to 4.26 per cent to head for their first decline in five sessions. A Bloomberg gauge of US government bonds turned negative for the year after losing 1.7 per cent since the end of February as the surge in oil prices added to inflation jitters.
Gold fell for a fourth day to trade around $5,000 an ounce.
Some other positives also emerged. The International Energy Agency indicated oil from an unprecedented stockpile release will be made available immediately in Asia as buyers seek to replace disrupted Middle East supply.
The agency’s statement came after it received implementation plans for the record 400-million-barrel reserve release announced last week.
The Trump administration plans to announce as soon as this week that it has formed a coalition with a number of countries to escort ships through the strait, the Wall Street Journal reported on Sunday. Still under discussion, however, was whether such an operation would begin before or after the missile strikes end, the report said.
“Most in the market are still extremely cautious as we have an uncertain Trump government in terms of what they will do or say,” said Nick Twidale, chief market analyst at AT Global Markets in Sydney.
(This story was produced with the assistance of Bloomberg Automation.)
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