Oil Prices Hit New Highs as US-Iran Deadlock Weighs on Asian Markets
By Rae Wee
Market Reactions to US-Iran Negotiations and Global Economic Outlook
Oil Price Surge Amid Diplomatic Stalemate
SINGAPORE, Aug 11 (Reuters) - Oil prices rose on Tuesday as negotiations between the U.S. and Iran over a peace deal and the reopening of the Strait of Hormuz hit an impasse, while Asian shares drifted on protracted uncertainty over the global inflation outlook.
U.S. President Donald Trump on Monday responded to Iran's conditions for a peace deal with his own demands that Iran pay compensation for people killed in wars, attacks and protests, in a rhetorical escalation likely to complicate efforts to reopen the crucial waterway.
Brent crude futures edged up to hit $88.00 per barrel and U.S. crude futures ticked up to $82.45, both the highest levels since July 31, after the contracts rallied roughly 5% on Monday.
Analyst Perspectives on Oil Market Dynamics
"We're now in a bit of a Mexican standoff, if you'd like, in terms of who blinks first," said Tony Sycamore, a market analyst at IG.
"This is going to be almost a war of attrition now," he said. "You probably can see the (oil) market sitting around the $75-95 range while we wait to see who blinks first."
Inflation Data and Central Bank Responses
The latest uptick in fuel costs raises the stakes for the U.S. July consumer price report due on Wednesday, where expectations are for a monthly rise of 0.1% in the headline reading and 0.2% for the core measure.
Any upside surprise could rekindle bets of a Federal Reserve rate hike next month, with the odds currently a coin toss.
Economist Views on Inflation and Interest Rates
"We think the risks are skewed towards a hot print, which would probably drive a rebound in rate expectations and, potentially, renewed worries about stagflation," said Jonas Goltermann, chief markets economist at Capital Economics.
"Overall, our assessment remains that the U.S. economy is running a bit hotter than a 'goldilocks' situation. That points to higher interest rates."
Regional Central Bank Actions
Trading of cash U.S. Treasuries was closed in Asia on Tuesday owing to a holiday in Japan, but futures fell slightly, implying higher yields.
Down Under, the Reserve Bank of Australia is due to announce its policy decision later on Tuesday, where expectations are for the central bank to keep rates on hold.
Asian and Global Market Performance
MSCI's broadest index of Asia-Pacific shares outside Japan swung between losses and gains and was last up 0.2% while South Korea's Kospi rose 0.3%, as the latest escalation in Gulf hostilities kept market sentiment fragile.
Nasdaq futures edged 0.28% higher while S&P 500 futures added 0.1% after Wall Street ended lower in Monday's cash session.
EUROSTOXX 50 futures slipped 0.05%, while FTSE futures and DAX futures were flat.
AI Investment Boom and Financial Innovation
Overnight, Nvidia said it has partnered with six major financial institutions to launch compute financing platforms aimed at raising over $500 billion in third-party capital for AI infrastructure, underscoring the scale of the sector's investment boom.
"A small part of me was left wondering whether this is how it felt when sub-prime mortgages first became a mainstream product - the innovation that eventually helped trigger the GFC," said IG's Sycamore.
Currency and Commodity Movements
In currencies, the yen was back in the spotlight, struggling on the weaker side of 159 per dollar and well away from last week's high of 155.20 following several suspected rounds of intervention, including a joint one by Japan and the United States.
"The market likely remains vigilant about further joint U.S.-Japan yen-buying intervention, so USD/JPY breaching 160 in the very near term seems unlikely," said analysts at Nomura in a note.
"However, the latest price action indicates there are quite a lot of USD/JPY dip-buyers, after the pair reached the 156-157 range for the first time since May."
The dollar got a marginal lift from the renewed climb in oil prices, keeping the euro away from a 1-1/2-month high as it last traded at $1.1546, while sterling eased from Monday's one-month top and changed hands at $1.3512.
Elsewhere, spot gold was up 0.5% to $4,409.81 an ounce. [GOL/]
(Reporting by Rae Wee; Editing by Kevin Buckland)
