Oil jumps, stocks drop as Iran tightens grip on Strait of Hormuz
Market Reactions and Economic Impacts
By Karen Brettell and Nell Mackenzie
May 4 (Reuters) - Oil prices jumped 6% on Monday and stocks fell as Iran escalated its military campaign, hitting several ships in the Strait of Hormuz and setting a UAE oil port ablaze.
Oil and Stock Market Movements
Brent futures rose $6.27, or 5.8%, to settle at $114.44 per barrel, while U.S. West Texas Intermediate (WTI) crude rose $4.48, or 4.4%, to settle at $106.42.
The moves came after U.S. President Donald Trump pledged over the weekend that the U.S. Navy would force the strait open, provoking the war's biggest escalation since a ceasefire was declared four weeks ago.
Strait of Hormuz Disruption
The Strait of Hormuz, through which roughly a fifth of the world's seaborne oil and gas normally flows, has been severely disrupted for two months.
Stock Indices Performance
U.S. stocks fell broadly, with the Dow Jones Industrial Average down 1.13%, the S&P 500 0.41% lower, and the Nasdaq Composite off 0.19%.
"The longer oil prices stay elevated above $100 a barrel, the more the fiscal stimulus from the tax cuts passed in 2025 shifts from being a stimulus to acting as a shock absorber," said Brock Weimer, analyst, investment strategy, at Edward Jones.
MSCI's broadest index of global shares outside Japan fell 0.22%.
European Markets and Bonds
In Europe, German carmakers dragged on regional equities after Trump said on Friday he would raise tariffs on European cars and trucks.
The pan-European STOXX 600 index fell 0.99%. Germany's 10-year bond yield, the benchmark for the euro zone bloc, rose 5 basis points to 3.08%. Markets in London were closed for a public holiday.
Central Banks and Inflation
Monetary Policy Shifts
CENTRAL BANKS TURN HAWKISH AS OIL FANS INFLATION FEARS
The oil-driven inflation threat pushed bond yields higher and complicated the outlook for monetary policy globally.
Federal Reserve and Rate Expectations
Markets no longer expect the Federal Reserve to cut rates this year, and have begun pricing in hikes from both the European Central Bank and the Bank of England.
Barclays on Monday joined other brokerages in forecasting the Fed will not ease policy this year. Friday's April payrolls report could further shift expectations.
The yield on benchmark U.S. 10-year notes rose 6 basis points to 4.438%.
Currency and Commodity Markets
Yen Volatility and Forex Trends
YEN VOLATILITY KEEPS FOREX TRADERS ON EDGE
Currency markets were also unsettled, with traders closely watching for signs of Japanese intervention to support the yen.
The dollar fell sharply against the yen in Asian trading before reversing direction. The Japanese yen was last down 0.04% against the greenback at 157.12 per dollar.
Analysts believe Tokyo may have already intervened last week to the tune of around $35 billion.
"The case for intervention is strong, given the inflationary impact of a weaker yen via import prices, a U.S. administration broadly comfortable with such action, and Japan's ample FX reserves," said Roberto Cobo Garcia, head of G10 FX strategy at BBVA.
Other Major Currencies and Commodities
The euro fell 0.24% to $1.1692 while sterling weakened 0.29% to $1.3532.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.28% to 98.44.
In commodity markets, spot gold fell 2.13% to $4,515.27 an ounce. [GOL/]
(Reporting by Karen Brettell, Lawrence Delevingne, Samuel Indyk, Niket Nishant, Utkarsh Hathi and Nell Mackenzie; Editing by Dhara Ranasinghe, Barbara Lewis and Matthew Lewis)
