Oil Advances as Iran Deal Eludes, Treasuries Slip: Markets Wrap

(Bloomberg) — Oil extended its recent gains as Iran rejected talks with the US and a deal to reopen the vital Strait of Hormuz remained elusive. Treasuries declined.

Global benchmark Brent crude rose 1.1% to $84.50 a barrel, extending a rally of more than 5% over the previous three sessions. As oil advanced, Treasuries gave back some of Friday’s gains, pushing the 10-year yield up one basis point to 4.66%. Japanese bonds of similar tenor also edged lower. The dollar strengthened.

Meanwhile, a gauge of Asian stocks rose 0.8% in a catch-up move, with gains for South Korean and Japanese chipmakers. The Kospi Index climbed as much as 2% before trimming its advance, with SK Hynix Inc. and Samsung Electronics Co. among the winners. The move followed Friday’s Wall Street rally after soft US jobs data lifted equities, sending the S&P 500 Index to a record high.

Iran and Oman failed to reach a final deal to reopen the Strait of Hormuz over the weekend after Tehran renewed a long list of demands to Washington, suggesting any near-term relief for oil and gas supplies may be limited. US consumer price data due this week will also be in focus after Friday’s soft jobs report reinforced expectations the Federal Reserve won’t need to raise interest rates soon.

“A much weaker than expected non-farm payrolls release painted a grim picture of the US labor market,” Kyle Rodda, a senior analyst at Capital.com, wrote in a note to clients. “But market participants treated the data as a ‘bad news is good news’ situation.”

Employers unexpectedly cut jobs in July and hiring in the prior two months was revised lower, suggesting the labor market is weaker than previously thought. Traders trimmed the likelihood of a rate hike at the Fed’s September meeting to a roughly 43% chance, down from 64% a week ago, according to swaps data compiled by Bloomberg.

Elsewhere, Treasuries surrendered some of their gains caused by the US jobs data. On Friday, two-year yields, the most sensitive to Fed policy expectations, dropped as much as nine basis points after the jobs report before ending about five basis points lower at 4.19%. That marked their biggest weekly decline since May.

The yield on the two-year note rose two basis points to 4.21% on Monday.

In other corners of the market, gold fell 0.5% to about $4,320 an ounce after a 7.3% advance last week. It was the best weekly gain for the metal since January.

What Bloomberg Strategists Say…

“Oil is firmer on Monday after another weekend of stalled progress on reopening the Strait of Hormuz, yet traders are skeptical prices will rise for an extended period. Net long oil positioning showed only a tepid rebound in July, but that’s already being trimmed across crude contracts.”

— Mark Cranfield, MLIV. For full analysis, click here.

Back to geopolitics, President Donald Trump on Sunday signaled patience, in an interview with Axios, saying the US could wait for Tehran’s economic suffering to soften its stance. The comments followed weeks of Trump threatening massive airstrikes on Iran only to pull back, saying he wanted to give negotiations a chance.

Investors can’t be too bearish given Trump is likely to back away from his threats again, particularly as his approval ratings have fallen to fresh lows, My Bui, an economist at AMP Ltd., wrote in a note to clients.

“So for now, it remains business as usual, with shares still supported by solid fundamentals, strong economic growth and rising productivity,” she added.

Corporate News:

Berkshire Hathaway Inc. spent about $4.5 billion to buy back its own shares in the second quarter and purchased nearly $20 billion of equities in the period, signs that Chief Executive Officer Greg Abel is putting more of the firm’s cash pile to work. SK Hynix Inc. is considering options for its Chongqing, China-based facility, including bringing in an investor to help accelerate growth, according to people with knowledge of the matter. Some of the main moves in markets:

Stocks

S&P 500 futures were little changed as of 10:51 a.m. Tokyo time Japan’s Topix rose 0.7% Australia’s S&P/ASX 200 fell 0.3% Hong Kong’s Hang Seng rose 0.5% The Shanghai Composite rose 0.6% Euro Stoxx 50 futures were little changed Currencies

The Bloomberg Dollar Spot Index rose 0.1% The euro was little changed at $1.1555 The Japanese yen fell 0.3% to 158.19 per dollar The offshore yuan was little changed at 6.7443 per dollar Cryptocurrencies

Bitcoin rose 0.1% to $65,195.26 Ether rose 0.3% to $1,925.94 Bonds

The yield on 10-year Treasuries advanced one basis point to 4.66% Japan’s 10-year yield advanced 2.5 basis points to 2.810% Australia’s 10-year yield declined two basis points to 4.99% Commodities

West Texas Intermediate crude rose 0.9% to $78.92 a barrel Spot gold fell 0.5% to $4,321.58 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Matthew Burgess.

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