European Stocks Set to Climb, Oil Erases Advance: Markets Wrap
(Bloomberg) — European stocks looked set to rebound after oil erased earlier gains sparked by fresh US strikes on Iran. Treasuries edged up.
Futures indicated European shares would rise 1% at the open, while contracts for Wall Street gauges reversed losses to advance 0.3%. Asian shares edged up 0.3% as Brent dropped 0.4% to trade below $78 a barrel.
Treasuries rebounded after bets the Federal Reserve will raise interest rates to counter inflation drove a selloff in bonds on Wednesday. The yield on the benchmark 10-year dropped two basis points to 4.56%. Gold and silver both gained.
The flare-up in Middle East tensions and jump in oil prices this week have reignited inflation concerns, prompting money markets on Wednesday to bring forward bets on the next Fed rate increase to October from December. That has added to pressure on markets already grappling with elevated stock valuations after this year’s rally in artificial intelligence shares.
The “chaos trade is back on the table, with oil, gold and safe havens suddenly pulled back into focus,” said Hebe Chen, a market analyst at Vantage Global Prime.
Traders remain focused on the bond markets after the selloff on Wednesday.
Minutes of the Fed’s June 16-17 meeting, released Wednesday, showed that a few committee members saw a case for a rate increase, though they ultimately supported the decision to make no change.
The potential for higher oil prices to keep inflation elevated has guided monetary policy expectations since the US attacked Iran in late February, causing a supply shock. Veteran strategist Ed Yardeni also said the rupture in the ceasefire between the US and Iran risks sparking a fresh acceleration in price growth, which in turn may compel the Fed to raise rates.
While benchmark oil prices remain well below their late-March peaks, they have climbed in recent days as fighting between the US and Iran resumed and President Donald Trump cast doubt on the durability of the ceasefire.
What Bloomberg Strategists Say…
“Fixed-income traders are pricing for more central banks to join this week’s interest-rate hike by the RBNZ. Currently rate increases are seen as likely by year-end for the Fed, ECB, BOE, BOJ and two more in New Zealand.”
— Mark Cranfield, MLIV. For full analysis, click here.
Meanwhile, traffic through the Strait of Hormuz came to a near standstill on Thursday, after the US struck Iran for a second straight day.
Observable movements in the world’s most vital energy conduit largely occurred along an Iran-approved route nearer to the waterway’s north, while the US-supported Omani corridor was quiet, ship-tracking data show.
“Crude has reclaimed its position as the central driver of cross-asset pricing as US-Iran tensions flare up again,” Dilin Wu, a strategist at Pepperstone Group, wrote in a note. “If oil keeps pushing higher and drags inflation expectations with it, Treasury yields will follow. That puts the Fed in an increasingly uncomfortable position.”
Corporate Highlights:
SK Hynix Inc.’s US listing is more than seven times oversubscribed, according to people familiar with the matter, as the South Korean memory chipmaker prepares to price its offering Thursday. China plans to allow top artificial intelligence companies to buy a limited amount of H200 chips from Nvidia Corp., a sign the country is easing restrictions on the coveted US technology, according to the Information. Meta Platforms Inc. will invest around $10 billion to build its first data center in Canada as the company expands its infrastructure to support its artificial intelligence ambitions. Some of the main moves in markets:
Stocks
S&P 500 futures rose 0.2% as of 7:06 a.m. London time Nasdaq 100 futures rose 0.4% The MSCI Asia Pacific Index was little changed The MSCI Emerging Markets Index fell 0.2% Japan’s Topix rose 0.3% Australia’s S&P/ASX 200 fell 0.3% Hong Kong’s Hang Seng fell 0.8% The Shanghai Composite rose 1% Euro Stoxx 50 futures rose 1.1% Currencies
The Bloomberg Dollar Spot Index was little changed The euro rose 0.2% to $1.1435 The Japanese yen rose 0.1% to 162.36 per dollar The offshore yuan was little changed at 6.7995 per dollar The British pound rose 0.1% to $1.3409 Cryptocurrencies
Bitcoin rose 0.8% to $62,555.26 Ether rose 0.7% to $1,748 Bonds
The yield on 10-year Treasuries declined two basis points to 4.56% Japan’s 10-year yield advanced one basis point to 2.875% Australia’s 10-year yield was little changed at 4.88% Commodities
Spot gold rose 0.3% to $4,091.13 an ounce West Texas Intermediate crude fell 0.2% to $73.39 a barrel This story was produced with the assistance of Bloomberg Automation.
–With assistance from Momoka Yokoyama, Bing Hong Lok and Abhishek Vishnoi.
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