Stan Choe
Updated ,first published
The US stock market remained calm, even as the price of oil got back to rising.
The S&P 500 edged down 0.1 per cent for a second day of modest moves following what had been a wild stretch caused by the war with Iran. The Dow Jones Industrial Average dropped 289 points, or 0.6 per cent, and the Nasdaq composite rose 0.1 per cent.
The Australian sharemarket is set to retreat, with futures at 7.53am AEDT pointing to a fall of 47 points, or 0.5 per cent, at the open. The ASX added 0.6 per cent on Wednesday. The Australian was trading at US71.52¢ at 7.59am AEDT.
Since the start of the war, sharp moves for oil prices have triggered swings up and down for financial markets worldwide, sometimes by the hour. Oil prices briefly spiked to their highest levels since 2022 this week because of the possibility that production in the Middle East could be blocked for a long time, which in turn raised worries about a surge of debilitating inflation for the global economy.
The International Energy Agency said Wednesday that its members will release a record amount of oil, 400 million barrels, from stockpiles they’ve set aside for emergencies. Such moves push downward on oil prices in the near term, but it will likely require a full resumption of the flow of oil and natural gas from the Persian Gulf area to fully ease the market. That has investors worldwide anxiously awaiting the end of the war.
The price for a barrel of Brent crude, the international standard, rose 4.8 per cent to settle at $US91.98. A barrel of benchmark U.S. crude gained 4.6 per cent to $US87.25.
Worries are centred on the Strait of Hormuz, a narrow waterway off Iran’s coast where a fifth of the world’s oil sails on a typical day. The war has halted most of that traffic, which means storage tanks for crude in the region are filling up because the oil has nowhere else to go. That in turn is pushing oil producers to say they’re cutting their output.
The United States said it took out more than a dozen minelaying Iranian vessels Tuesday, and the Islamic Republic vowed to block the region’s oil exports, saying it would not allow “even a single liter” to be shipped to its enemies.
All this is happening at a time when inflation was already relatively high in the United States. A report released Wednesday showed that U.S. consumers paid prices for groceries, gasoline and other costs of living that were 2.4 per cent higher in February than a year earlier.
To be sure, that inflation rate was the same as the prior month’s and better than the 2.5 per cent that economists expected, but it remains above the 2 per cent target the Federal Reserve has set for the economy. It also doesn’t include the spike in gasoline prices that’s happened this month because of the war.
“Looking forward, we expect a spring bulge in inflation due to the spike in energy prices tied to the Iran war, the duration of which will dictate the landing spot for headline inflation by year end,” according to Gary Schlossberg, global strategist at Wells Fargo Investment Institute.
High inflation combined with a stagnating economy would create a worst-case scenario called “stagflation” that the Federal Reserve has no good tools to fix. Stagflation fears are rising not just because of higher oil prices but also because of weakness in hiring by U.S. employers.
On Wall Street, the majority of stocks fell. Campbell’s sank 7.1 per cent after the soup company reported a weaker profit for the latest quarter than analysts expected. It was hurt by struggles for its snack business, and it cut its forecasts for revenue and profit this fiscal year.
Helping to limit Wall Street’s losses was Oracle, which jumped 9.2 per cent. The tech giant reported stronger profit and revenue for the latest quarter than analysts expected. It also raised its forecast for revenue growth next fiscal year, in part because of demand for cloud computing for artificial-intelligence training and inferencing.
All told, the S&P 500 fell 5.68 points to 6,775.80. The Dow Jones Industrial Average dropped 289.24 to 47,417.27, and the Nasdaq composite rose 19.03 to 22,716.13.
In stock markets abroad, indexes fell in Europe following better performances in Asia. Germany’s DAX lost 1.4 per cent, while Japan’s Nikkei 225 rose 1.4 per cent.
In the bond market, Treasury yields rose because of the upward pressure from higher oil prices. The yield on the 10-year Treasury climbed to 4.22 per cent from 4.15 per cent late Tuesday, a notable move for the bond market. Higher yields crank up the pressure on other investments, pushing downward on their prices.
Because of the spike for oil prices, traders have pushed back forecasts for when the Fed could resume its cuts to interest rates. President Donald Trump has been angrily calling for such cuts, which would give the economy and job market a boost but also potentially worsen inflation.
AP
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