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Oil volatility tests market resilience

Oil prices surged again midweek despite the International Energy Agency’s (IEA) decision to coordinate a record release of emergency reserves, keeping geopolitical risks around the Strait of Hormuz firmly in focus for markets. US equities finished mixed and European stocks fell on Wednesday as investors weighed the limited reassurance from the IEA move against ongoing attacks on vessels and the prospect of renewed US trade tensions. Asian equity markets were lower on Thursday, while US Treasury yields edged higher and the US dollar firmed, reflecting concerns that the latest spike in crude could spill over into broader inflation just as US and German data had signalled subdued underlying price pressures prior to the outbreak of the conflict.

  • Date
  • Author Shane Strowmatt, Senior Investment Writer
  • Reading time 5 minutes

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Oil prices climbed midweek despite the IEA saying member countries would deploy 400 million barrels from emergency stockpiles, the biggest such release ever, to counter war-related supply disruptions around the Strait of Hormuz. Oil prices were surging on Thursday, with Brent crude oil futures trading above USD 98 and West Texas Intermediate (WTI) futures at nearly USD 93 per barrel, both up more than 6% and reversing a sharp fall on Tuesday that followed an incorrect social media post claiming the US Navy had safely escorted a tanker through the waterway. The IEA move comes as vessel attacks and military strikes linked to the conflict between the US and Iran have severely disrupted tanker and cargo traffic through this key shipping chokepoint, with several ships reported hit and airspace near Dubai temporarily closed after drone incidents. Adding to the uncertainty, the US administration of President Donald Trump opened Section 301 trade investigations on Wednesday into more than a dozen countries, including China, Japan and India, aiming to introduce new tariff measures after Trump’s reciprocal tariffs were recently struck down by the Supreme Court.

Treasury yields, Asian stocks fall

Following reports of attacks on two international tankers in the northern Persian Gulf, Treasury yields were trading higher with the two-year yield around 3.7%, the ten-year yield near 4.2%. Gold remained stable, limited a stronger US dollar. Asian equity markets declined: Japan’s Nikkei 225 was trading 1.1% lower, while Korea’s Kospi was down 0.5% and Australia’s S&P/ASX 200 was 1.3% weaker. Hong Kong’s Hang Seng Index was trading 0.9% lower and mainland China’s CSI 300 was down 0.4%.

US stocks mixed as oil worries rise

US equities ended mixed as traders kept their eyes on energy markets and geopolitical developments. The Dow Jones Industrial Average fell 0.6%, while the Nasdaq 100 edged slightly higher to 24,965.01 points and the S&P 500 was virtually unchanged at 6775.80 points, supported by strong results from US software group Oracle (+9.2%), after reporting faster growth and an upbeat outlook.

US inflation steady ahead of oil shock

US consumer price inflation remained stable in February, with the headline consumer price index rising 0.3% on the month and 2.4% compared with a year earlier, matching economists’ expectations, according to data released on Wednesday. Core inflation, which excludes food and energy, increased 0.2% on the month and 2.5% annually, also unchanged from January and in line with forecasts, as modest gains in shelter and services prices offset declines in categories such as used vehicles and auto insurance. The report is likely to represent a calm before the storm, as it does not yet reflect the recent jump in crude prices following the Iran war, which could feed through to gasoline and wider costs in coming months, leaving the Federal Reserve inclined to keep interest rates unchanged at its decision next week while monitoring the impact of last year’s cuts and heightened geopolitical risks.

German inflation eases as food prices cool

Germany’s inflation rate, measured by the consumer price index, was confirmed at 1.9% year-on-year in February, down from 2.1% in January and slightly above the 1.8% rate recorded in December, according to data released on Wednesday. Slower food price increases of 1.1% year-on-year, after 2.1% in January, and a 1.9% decline in energy prices compared with February last year helped to damp overall inflation, with household energy costs, including natural gas and electricity, falling markedly. Despite German inflation near the European Central Bank's 2% target, European stocks couldn't escape the poor broader market sentiment on Wednesday. The Euro Stoxx 50 declined 0.7%, while Germany’s DAX underperformed, falling 1.4%. France’s CAC 40 edged 0.2% lower and Switzerland’s SMI shed 1.1%.

Corporate and economic calendar

Corporate news in focus: Quarterly figures from Adobe.

Economic data in focus: Canadian trade balance (13:30), US weekly initial jobless claims (13:30), US trade balance (13:30) and US building permits (13:30).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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