A drone strike caused a fire at a nuclear power plant in the United Arab Emirates, while Saudi Arabia reported intercepting three drones, as U.S. President Donald Trump warned that Iran must act “fast” to reach a deal.
Meanwhile, the vital Strait of Hormuz remains closed to all but a trickle of shipping as Tehran tries to formalise its control of the waterway that used to carry 20% of the world’s oil trade.
“The closure is draining global oil inventories fast,” warned analysts at Capital Economics. “Inventories could reach critical levels by end-June, setting the stage for Brent at $130-140pb, if not higher.”
“If the strait is closed through year-end and oil stays around $150pb into 2027, that would push inflation to near 10% in the UK and euro zone, send rates back to their recent peaks and lead to global recession.”
Brent was trading up 1.2% at $110.63 a barrel, while U.S. crude climbed 1.0% to $106.42 a barrel. [O/R]
G7 finance ministers gather in Paris on Monday to discuss the Strait of Hormuz and critical raw material supplies, even as geopolitical differences threaten to test the group’s cohesion. Concerns energy costs would stay high and thus continue to drive inflation, saw global bond markets hammered on Friday.
Yields on U.S. 10-year notes were up at 4.584%, having surged 23 basis points last week, while 30-year bonds stood at 5.109% after jumping 18 basis points on the week.
Investors in turn feared central banks globally would have to tighten to head off an inflationary spiral, and a hike from the Federal Reserve is now seen as a 50-50 chance this year.
Minutes of the Fed’s last meeting are out on Wednesday and should show how much pressure there was on the committee for a shift to a neutral stance, and away from an easing bias.
Japan’s Nikkei eased 0.4%, having fallen 2% last week though that was from record highs. South Korean stocks fell 2.1%, as the red-hot market cooled just a little after demand for semiconductors drove it to all-time peaks.
MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.6%. China’s markets hit their highest in more than four years last week, but will have to weather data on April retail sales and industrial output later in the session.
AI, RETAIL EARNINGS TO TEST THE BULL RUN
S&P 500 futures fell 0.4% and Nasdaq futures lost 0.5% in early trade.
While Wall Street has been supported by upbeat earnings, analysts at Citi noted half of the boost to earnings came from one-time items such as tariff add-backs and asset mark-ups. Both the gains in profits and the overall indexes were also tightly based.
“We identify 20 stocks that contributed the majority of index earnings upside,” wrote analyst Scott Chronert in a note. “Forward guidance increases also show a similar narrow focus.”
“Broadening is a necessary condition for meaningful index upside from here,” he added. “This will require a better line of sight to the Iran conflict wind-down.”
The all-important AI trade will be tested by earnings from Nvidia due on Wednesday, where expectations are sky high for the world’s most valuable company.
Nvidia shares are up 36% since the March low, while the Philadelphia SE semiconductor index has surged more than 60%, amid voracious demand for chips as tech companies spend massively to build AI-related infrastructure.
Also due this week are results from a host of retailers led by Walmart, which will provide an insight into how consumers are faring with high energy prices.
In forex markets, risk aversion has tended to benefit the greenback as the world’s most liquid currency. The U.S. is also a net energy exporter, giving it a relative advantage over Europe and much of Asia.
The euro sat at $1.1620, after losing 1.4% last week. The pound wallowed at $1.3318, having dived 2.3% last week as political instability added to already intense pressure on the gilt market.
The dollar held firm on the yen at 158.64, with only the threat of Japanese intervention preventing another speculative assault on the 160.00 chart barrier.
In commodity markets, gold was flat at $4,540 an ounce, having drawn little support so far as a safe haven or as a hedge against inflation risks. [GOL/]
