Wall Street down, oil up as inflation, Middle East worries persist

Wall Street Slides, Oil Prices Surge on Inflation and Middle East Concerns

Market Reactions to Inflation and Geopolitical Tensions

By Pete Schroeder

Stock Market Performance

WASHINGTON, Sept 8 (Reuters) - Stocks slipped on Tuesday and oil flirted with $100 a barrel prices as investors fretted over potential inflation concerns and ongoing conflict in the Middle East.

All three major U.S. indices dipped Tuesday, kicking off a holiday-shortened week on a lower note. The Dow Jones Industrial Average closed down 1.18%, while the S&P 500 dropped 0.58% and the Nasdaq Composite slipped 0.32%.

MSCI's gauge of stocks across the globe was last down 0.55%. 

Oil and Commodity Price Movements

Oil Prices Surge Amid Middle East Conflict

Meanwhile, oil prices climbed after Iran-backed Houthis in Yemen attacked Saudi energy facilities. Brent crude oil was up 2.13% to $99.07 a barrel and U.S. crude jumped 2.82% to $94.05 a barrel. 

Impact on Other Commodities

In commodities beyond oil, the price of copper hit a record high on Tuesday, as global supply tightened with the metal continuing to flow into the U.S. ahead of possible tariffs.

Three-month copper on the London Metal Exchange was up 1.5% at $14,728 a ton.

Inflation and Central Bank Responses

Global Central Bank Actions

A resurgence in inflation has knocked the equity market in the past few weeks, in large part because of the surge in bond yields to multi-year highs, which puts central banks under pressure to raise interest rates.

The European Central Bank is all but certain to raise euro zone rates by a quarter point on Thursday this week, while the chances of the Bank of Japan doing the same next week are intensifying, which has set the yen on course for its strongest rally in two years. The Federal Reserve is also set to reconsider its rates, issuing a new statement on September 16.

Upcoming U.S. Inflation Data

U.S. inflation data on Friday could prove decisive in setting expectations for the outcome of the Fed's upcoming meeting. Right now, money markets show traders are attaching a roughly 58% chance of a rate rise.

Currency and Bond Market Developments

Yen and Dollar Movements

Oil remained the dominant theme on Tuesday, but the yen's surge looms large for global markets. Because of its status as a low-yielding currency, traders have borrowed yen in earnest to fund purchases of higher-yielding assets across currencies, bonds and equities, a strategy known as the carry trade.

In the last week alone, the yen has gained nearly 4%, its largest week-on-week increase since July 2024. On Tuesday, it was trading around 153.97, leaving the dollar slightly lower on the day.  

The dollar index, which measures the greenback against a basket of currencies, including the yen and the euro, rose 0.02% to 98.86. 

Bond Market Yields

In the bond market, benchmark U.S. 10-year Treasury notes were yielding 4.8%, not far off their highest since November 2023.

(Additional reporting by Gregor Stuart Hunter in Singapore and Amanda Cooper in London; Editing by Shri Navaratnam, Alex Richardson, Andrea Ricci, Aurora Ellis and Deepa Babington)