LONDON: Oil climbed back above $100 a barrel on Thursday as renewed concerns over the Iran war and shipping disruption in the Strait of Hormuz weighed on global stock markets, lifted bond yields and supported the dollar.
Brent crude rose 2.5 per cent to nearly $105 a barrel, extending gains after Iran seized two ships attempting to leave the Strait on Wednesday, raising fresh doubts over whether a fragile ceasefire with the United States can hold.
The rise in oil prices pushed investors away from risk assets, knocking shares lower across Europe and Asia, while Wall Street futures also turned negative after recent record highs.
Europe’s main stock markets fell between 0.2 per cent and 0.8 per cent in early trade, dragging MSCI’s world equity index away from last week’s peak.
Wall Street futures slipped about 0.5 per cent, signalling a pullback after the S&P 500 and Nasdaq closed at fresh record highs on Wednesday, helped by strong early corporate earnings.
In Europe, the market mood was also hit by signs that the conflict is starting to feed into economic activity.
German data showed private sector output contracted for the first time in almost a year, while business activity across the euro zone unexpectedly shrank. In France, activity fell at its fastest pace in 14 months, while factory orders rose for the first time in nearly four years, suggesting firms are rushing to secure supplies before shortages and higher prices worsen.
“The euro zone is facing deepening economic woes from the war in the Middle East, presenting a major headache for policymakers,” said Chris Williamson, chief business economist at S&P Global.
He said increasingly widespread supply shortages were likely to further weaken growth while adding to inflation pressures in the coming weeks.
The rebound in oil also pushed bond yields higher, limiting the usual support weaker economic data can provide to debt markets.
Germany’s 10-year government bond yield rose 2.5 basis points to 3 per cent, moving back towards the near 15-year high of 3.13 per cent reached in late March.
US Treasury yields also rose, with the two-year yield at 3.81 per cent and the 10-year at 4.32 per cent in European trading.
Currency moves were more subdued. The euro held at $1.17, just above a 10-day low, while the Australian dollar slipped 0.2 per cent to $0.7147.
“We are slightly in limbo because the geopolitical story could take a significant turn at fairly short notice,” said Kit Juckes of Societe Generale.
“Until we get some clarity, nobody is going to have the conviction to push things too far,” he said.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan ended lower after briefly touching a record high. Japan’s Nikkei, as well as major technology-heavy markets in Taiwan and South Korea, also gave up earlier gains and closed lower.
Analysts said higher oil prices remained the main pressure point for markets.
In addition to Iran’s seizure of vessels, the Washington Post reported that the Pentagon believes it could take up to six months to clear the Strait of Hormuz of mines.
“Markets look very on edge here,” said Charu Chanana, chief investment strategist at Saxo.
“We are still in a no-war, no-peace zone, and that means even an unverified scare of escalation can jolt oil and knock risk assets lower.”_Reuters
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