Oil Rises as US Hits Iran, Stocks Lose Momentum: Markets Wrap

(Bloomberg) — Oil climbed and government bonds fell after the US and Iran launched a fresh round of attacks, escalating tensions in the Middle East. Gold and silver declined.

Brent rose 1.2% to $78.94 a barrel, on track for a third straight day of gains, as the US military completed an additional round of strikes against Iran. Asian shares pared their earlier advance to gain 0.1% as a rally in chip stocks lost momentum. Futures contracts for Wall Street gauges were little changed after fluctuating between gains and losses.

Sovereign bonds fell in Japan, Australia and New Zealand, extending a slide in global debt on bets the Federal Reserve will raise interest rates to counter inflation. US Treasuries were little changed in Asia, after yields on the policy-sensitive two-year yield had approached the highest level this year on Wednesday.

Gold slid for a fourth day, to trade around $4,060 an ounce, as the prospect of higher interest rates weakened the appeal of the non-yielding metal. Silver dropped 0.8% to $57.85 an ounce.

The flare-up in Middle East tensions and surge in oil prices 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. Shanghai Iluvatar CoreX Semiconductor Co. raised about $902 million from a share sale in Hong Kong after its stock soared since an initial public offering in January. Chinese artificial-intelligence model maker Zhipu priced a $4 billion share sale at the low end of the marketed range. Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.2% as of 1:39 p.m. Tokyo time Nikkei 225 futures (OSE) rose 1.9% Japan’s Topix rose 0.2% Australia’s S&P/ASX 200 fell 0.4% Hong Kong’s Hang Seng fell 0.8% The Shanghai Composite fell 0.5% Euro Stoxx 50 futures rose 1% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1426 The Japanese yen was little changed at 162.44 per dollar The offshore yuan was little changed at 6.8022 per dollar Cryptocurrencies

Bitcoin rose 0.3% to $62,230.48 Ether rose 0.2% to $1,738.56 Bonds

The yield on 10-year Treasuries was little changed at 4.58% Japan’s 10-year yield advanced three basis points to 2.895% Australia’s 10-year yield advanced two basis points to 4.90% Commodities

West Texas Intermediate crude rose 1.1% to $74.33 a barrel Spot gold fell 0.3% to $4,063.32 an ounce 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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