Shares slip, oil rises as investors weigh Iran outcomes
Oil prices are up but have backed off early highs after US strikes on Iran threatened to spark disruptions in the trade, while Asian stocks are down.
Shares have slipped in Asia and oil prices briefly hit five-month highs as investors anxiously wait to see if Iran will retaliate against US attacks on its nuclear sites, with resulting risks to global activity and inflation.
Early moves were contained, with the dollar getting only a minor safe-haven bid and no sign of panic selling across markets. Oil prices were up about 2.8 per cent, but off their initial peaks.
Optimists are hoping Iran might now back down on its nuclear ambitions, or even that regime change might bring a less hostile government to power there.
Analysts at JPMorgan, however, cautioned that past episodes of regime change in the region typically resulted in oil prices spiking by as much as 76 per cent and averaging a 30 per cent rise over time.
Key will be access through the Strait of Hormuz, which is only about 33 kilometres wide at its narrowest point and carries about a quarter of global oil trade and 20 per cent of liquefied natural gas supplies.
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“Selective disruptions that scare off oil tankers make more sense than closing the Strait of Hormuz given Iran’s oil exports would be shut down too,” said Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia.
“In a scenario where Iran selectively disrupts shipping through the Strait of Hormuz, we see Brent oil reaching at least $100/bbl.”
For now, Brent was up a relatively restrained 2.7 per cent at $79.12 a barrel, while US crude rose 2.8 per cent to $75.98.
Elsewhere in commodity markets, gold edged down 0.1 per cent to $3,363 an ounce.
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Share markets were proving resilient so far, with S&P 500 futures off a moderate 0.5 per cent and Nasdaq futures down 0.6 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5, and Japan’s Nikkei eased 0.9 per cent.
EUROSTOXX 50 futures lost 0.7 per cent, while FTSE futures fell 0.5 per cent and DAX futures slipped 0.7 per cent. Europe and Japan are heavily reliant on imported oil and LNG, whereas the United States is a net exporter.
The dollar edged up 0.3 per cent on the Japanese yen to 146.48 yen , while the euro dipped 0.3 per cent to $1.1481. The dollar index firmed 0.17 per cent to 99.078.
There was also no sign of a rush to the traditional safety of Treasuries, with 10-year yields rising two basis points to 4.397 per cent.
Futures for Federal Reserve interest rates were a tick lower, likely reflecting concerns a sustained rise in oil prices would add to inflationary pressures at a time when tariffs were just being felt in US prices.
Markets are still pricing only a slim chance the Fed will cut at its next meeting on July 30, even after Fed governor Christopher Waller broke ranks and argued for a July easing.
Most other Fed members, including chair Jerome Powell, have been more cautious on policy leading markets to wager a cut is far more likely in September.
At least 15 Fed officials are speaking this week, and Powell faces two days of questions from lawmakers, which is certain to cover the potential impact of President Donald Trump’s tariffs and the attack on Iran.
The Middle East will be high on the agenda at a NATO leaders’ meeting at the Hague this week, where most members have agreed to commit to a sharp rise in defence spending.
Among the economic data due are figures on US core inflation and weekly jobless claims, along with early readings on June factory activity from across the globe.
