Oil Prices Surge 5% While Wall Street Edges Lower Amid Hormuz, Inflation News
Market Reactions to Hormuz Developments and Inflation Concerns
By Chris Prentice and Harry Robertson
Wall Street and Global Stock Performance
NEW YORK/LONDON, Aug 10 (Reuters) - Wall Street indexes retreated and oil prices rallied 5% on Monday, with markets focused on the outlook for Federal Reserve interest rates and on a potential deal between the U.S. and Iran to reopen the Strait of Hormuz.
Iran insisted that the United States must satisfy several demands before the Strait can reopen, fueling uncertainty. [O/R]
Gold touched its highest level since early June. [GOL/]
U.S. and European Stock Indexes
On Wall Street, the Dow Jones Industrial Average fell 0.11% to 53,975.98, the S&P 500 edged down 0.06% to 7,753.11 and the Nasdaq Composite lost 0.32% to 26,605.36.
U.S. stocks had hit a record high on Friday after a weaker-than-expected jobs report caused traders to cut their bets on Fed rate hikes.
Europe's benchmark stock index was little changed near a record high as investors paused ahead of a week packed with economic data.
The MSCI index of global stocks edged up 0.04%.
Strait of Hormuz and Oil Prices
Iran said on Sunday that a deal with Oman about transit through the Strait of Hormuz was in its final stages, but reiterated that the waterway would reopen only if the United States met other conditions. Those include compensation and an end to sanctions and military threats.
Brent crude futures settled up $4.17, or 4.99%, at $87.72 a barrel, while U.S. West Texas Intermediate crude futures closed up $3.95, or 5.05%, at $82.13.
Key Economic Events and Inflation Outlook
The key event for markets this week is the U.S. inflation reading for July on Wednesday, which will impact Fed officials' thinking on rates. Investors will also be watching euro zone employment data and U.S. consumer price figures for clues on the interest rate outlook.
Inflation Expectations
Economists polled by Reuters expect the Consumer Price Index to have risen 3.4% year-on-year in data on Wednesday, compared with 3.5% the previous month.
"We are keeping our view of no hikes from the Fed for this year," said Mohit Kumar, a senior European economist at Jefferies, noting this week's inflation report is key.
"If oil prices remain contained and move lower from the current levels, that would prevent the need for the Fed to hike rates," Kumar said.
Asian and Emerging Markets
Asian shares rose, with MSCI's broadest index of Asia-Pacific shares outside Japan closing up 0.61% at 1,628.74.
Emerging market stocks gained 0.69% to trade at 1,669.27.
Earnings Help Power Stocks
EARNINGS HELP POWER STOCKS
Corporate Earnings and Analyst Insights
Stock markets around the world have hit record highs in recent weeks, boosted by strong corporate earnings.
Analysts at BofA said that with nearly 90% of S&P 500 results in, earnings per share were up 30% on the year after excluding investment gains at Alphabet and Amazon. A 76% EPS beat rate matched the strongest level since 2021.
Strategists at JPMorgan revised up their 2026 EPS estimate to $365, marking annual growth of 35%, and lifted their S&P 500 price target to 8,000 from 7,800. It is currently at 7,758.
Upcoming Earnings Reports
Earnings are lighter this week, but include semiconductor company Applied Materials, networking equipment maker Cisco and cloud infrastructure technology company CoreWeave.
Bonds, Currencies, and Commodities
BONDS AND CURRENCIES
Bond Yields and Currency Movements
The yield on benchmark U.S. 10-year notes rose 4.25 basis points to 4.701%, from 4.658%, with the market bracing for $125 billion in new issuance this week.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.17% to 99.81, with the euro down 0.14% at $1.1542.
The Japanese yen weakened 0.94% to 159.31 per dollar, though investors were still wary of intervention.
Central Bank Perspectives
Bank of Japan policymakers warned of mounting inflation risks that could require a faster-than-expected pace of interest rate increases, a summary of opinions at their July meeting showed, boosting the case for a September hike.
Gold and Commodities
In commodities, U.S. gold futures rose 0.5% to settle at $4,419.70. Spot gold was up 1.12% at $4,390.29 an ounce after touching a nine-week peak.
(Reporting by Chris Prentice in New York, Harry Robertson in London and Wayne Cole in Sydney; Editing by Nick Zieminski and Matthew Lewis)