Oil Prices Surge While Fed Rate Hike Hopes Dim After US Data Release
Market Reactions to US Data and Geopolitical Tensions
By Chris Prentice and Amanda Cooper
NEW YORK/LONDON, Aug 14 (Reuters) - U.S. and European shares fell on Friday and oil prices rose more than $1 a barrel as markets monitored tense U.S.-Iran talks and digested new data that dented expectations for a Federal Reserve rate hike next month.
Impact of Iran Conflict on Oil and Gas Prices
Faltering talks to end the Iran war left oil and gas prices poised for sizeable weekly gains. The U.S. threatened to ramp up economic pressure on Iran, including extending a naval blockade.
US Economic Data and Consumer Sentiment
U.S. consumer sentiment deteriorated in early August amid the rising cost of living because of the Middle East conflict, a survey showed on Friday.
The U.S. dollar fell on a surprise drop in U.S. retail sales, supporting gold prices. The data further reduced expectations of a Federal Reserve rate hike at next month's meeting.
U.S. Treasuries fell on Friday after an initial rally driven by the retail sales data lost momentum.
Stock Market Performance
US Indices
The S&P 500 fell from record highs, under pressure as shares in chip equipment maker Applied Materials declined, to end the session down 0.17% at 7,785.76 points. Chipmakers including Broadcom and Intel also dropped.
The Nasdaq declined 0.28% to 26,729.16 points, while the Dow Jones Industrial Average declined 0.20% to 53,732.41 points.
"A lot of the drivers in the market right now are around various parts of AI," said Thomas Martin, senior portfolio manager at GLOBALT Investments in Atlanta.
European and Global Markets
European shares finished lower on Friday and snapped a four-week winning streak, as rising crude prices and renewed geopolitical tensions offset support from a resilient earnings season.
MSCI's gauge of stocks across the globe fell 0.79 points, or 0.07%, to 1,160.01.
MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.29% higher at 1,640.08.
Geopolitical Risk and Market Sentiment
Expert Commentary
GEOPOLITICAL RISK
"The markets round out the week on a positive note, with relatively thin event risk on the economic and corporate calendar. But of course, it’s a Friday, and the typical pattern has been for geopolitical risks, or at least bombastic rhetoric, to pick up between the U.S. and Iran going into the weekend," Capital.com strategist Kyle Rodda said.
"Currently, the geopolitical uncertainty remains the only major macro roadblock to a market experiencing strong tailwinds from earnings and the monetary policy outlook," Rodda said.
Oil Price Movements
Brent crude oil futures settled at $88.52 a barrel, up 1.67%. U.S. futures finished at $82.40, up 1.42%.
Asset Price Volatility
John Sidawi, senior portfolio manager for fixed income at Federated Hermes, said a puzzling feature of markets in recent months has been the growing disconnect between geopolitical uncertainty and asset price volatility.
"For now, markets appear willing to tolerate a significant amount of uncertainty without demanding higher risk premiums. However, this equilibrium is unlikely to be permanent," Sidawi said.
"A meaningful escalation in conflict or a clear path toward resolution could finally force investors off the sidelines, potentially triggering a much larger volatility response than current market pricing implies."
Currency and Commodity Markets
Yen and Dollar Movements
Bank of Japan Policy Speculation
YEN STUCK IN INTERVENTION LOOP
In currencies, the yen strengthened 0.1% against the greenback to 159.33, after a Reuters report that the Bank of Japan could raise rates as soon as September, according to three sources familiar with policymakers' thinking.
However, it is still within sight of the 160 level that traders think could trigger another bout of yen buying from Tokyo, after joint intervention with the U.S. last month failed to support the Japanese currency.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro,fell 0.28% to 99.65, with the euro up 0.35% at $1.1567.
Gold and Bond Markets
Spot gold rose 0.53% to $4,374.27 an ounce, while U.S. gold futures settled 0.4% higher at $4,437.30.
In bonds, the yield on benchmark U.S. 10-year notes rose 4.72 basis points to 4.688%. [US/]
(Additional reporting by Noel Randewich in San Francisco and Ankur Banerjee in Singapore; Editing by Sonali Paul, Alex Richardson, Emelia Sithole-Matarise, Nia Williams and Edmund Klamann)
