Stocks eke out record closing highs, oil slides as markets eye US-Iran peace progress
By Stephen Culp
Market Overview and Geopolitical Influences
NEW YORK, May 27 (Reuters) - Wall Street stocks showed little conviction on Wednesday, inching to all-time closing highs, while crude oil prices retreated as investors assessed developments in U.S.-Iran peace negotiations.
Stock Market Performance
The S&P 500 and the Nasdaq ended only slightly higher, with a pullback in chip stocks capping their gains, while the Dow ended more decisively higher. All three indexes reached record closing levels.
Impact of Geopolitics on Markets
U.S. Treasury yields eased on hopes that the months-long blockade of the Strait of Hormuz could soon be lifted, easing fears that the resulting energy price squeeze could metastasize into higher inflation, and in turn, tighter monetary policy.
Iran's state TV said it obtained a draft of an unofficial framework of an initial understanding between Washington and Tehran toward ending the conflict, which would entail Iran restoring shipments through the crucial waterway to pre-war levels within a month. The White House said the report was false.
"Today's one of those days where geopolitics take over, with competing statements coming in fast and furious; there's so much news out there," said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. "So it's sort of a neutral day, but of course we've had a huge run since the end of March, when the markets just shot upward."
This follows claims from Iran on Tuesday that the United States violated the ceasefire, potentially complicating peace efforts. For its part, Washington insisted its recent strikes were defensive in nature.
As of Wednesday, however, the fragile truce remained intact, offering hope that a deal could be imminent.
Federal Reserve and Economic Data Outlook
Financial markets are currently pricing in a 38.1% likelihood that the U.S. Federal Reserve will raise interest rates in December, according to CME's FedWatch tool, which showed zero possibility of a December rate hike one month ago.
Thursday has a loaded docket of economic data, including the Commerce Department's second take on first-quarter GDP and its broad-ranging Personal Consumption Expenditures (PCE) report, which will include the Fed's preferred inflation gauge.
Analysts expect year-on-year headline and core inflation growth of 3.8% and 3.3%, respectively, well above the central bank's annual 2% target.
Global Market Movements
The Dow Jones Industrial Average rose 182.60 points, or 0.36%, to 50,644.28, the S&P 500 rose 1.24 points, or 0.02%, to 7,520.36 and the Nasdaq Composite rose 18.55 points, or 0.07%, to 26,674.74.
European and Emerging Markets
European shares ended little changed, hovering close to record highs reached prior to the Iran war as strength in automobile and chemical stocks offset lingering worries regarding the conflict and its possible inflationary impact.
MSCI's gauge of stocks across the globe rose 0.97 points, or 0.09%, to 1,122.39.
The pan-European STOXX 600 index rose 0.03%, while Europe's broad FTSEurofirst 300 index rose 1.65 points, or 0.07%.
Emerging market stocks rose 18.52 points, or 1.08%, to 1,738.93.
Commodities and Currency Markets
Oil Prices React to Peace Talks
Crude oil prices dropped on signs of progress in a U.S.-Iran deal to reopen the Strait of Hormuz.
"Oil is off its high at this point, I think oil is getting closer to where it ought to be, given that it doesn't appear that (the war) is going to escalate from here and that everybody's looking for an off-ramp," said Oliver Pursche, senior vice president at Wealthspire Advisors in New York.
U.S. crude fell 5.55% to settle at $88.68 per barrel, while Brent settled at $94.29 per barrel, down 5.31% on the day.
Bond Yields and Currency Movements
U.S. Treasury yields edged lower on continued signs of progress in Middle East peace talks.
The yield on benchmark U.S. 10-year notes fell 1.4 basis points to 4.477%, from 4.491% late on Tuesday.
The 30-year bond yield fell 1.8 basis points to 5.007% from 5.025% late on Tuesday.
The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 1.7 basis points to 4.033%, from 4.05% late on Tuesday.
The dollar held steady after Tuesday's uptick, while the yen slid to its weakest level against the greenback since late April, brushing against levels that triggered an official Japanese intervention last month as investors eyed a potential flare-up of turmoil in the Middle East.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.1% to 99.20, with the euro up 0.01% at $1.1629.
Against the Japanese yen, the dollar strengthened 0.14% to 159.52.
Cryptocurrencies and Precious Metals
In cryptocurrencies, bitcoin fell 1.31% to $75,025.00. Ethereum declined 0.97% to $2,055.62.
Gold prices declined to a two-month low as war-related inflation increased the odds that the Fed could hike interest rates this year.
Spot gold fell 1.19% to $4,452.38 an ounce. U.S. gold futures fell 1.19% to $4,447.00 an ounce.
(Reporting by Stephen Culp in New York; Additional reporting by Tom Wilson in London and Rocky Swift in TokyoEditing by Keith Weir and Matthew Lewis)
