Wall Street swings lower, ASX set to rise
Stan Choe
Oil prices have fluctuated following a scare in which prices rose and then slowed, and the yo-yo moves have unsettled stock markets around the world.
The S&P 500 lost 0.3 percent after swinging between modest gains and losses. Dow Jones rose 48 points, or 0.1 percent. The Nasdaq composite fell 0.7 percent, but like the S&P 500, it remains near last week’s all-time high. The Australian share market is poised for a rally, with futures pointing to a gain of 41 points, or 0.5 per cent, at the open at 4.58am AEST. The ASX fell 1.5 per cent on Monday. The Australian dollar was trading at 71.65¢.
The center of the recent action has been world bond markets, where rising yields have increased pressure on economies and stock markets around the world. Higher yields make it more expensive for households and businesses to borrow; US home buyers also know this very well due to high mortgage rates.
Higher interest rates could also make it harder for companies to borrow money to build massive data centers for the artificial intelligence technology that drives much of the U.S. economy’s growth.
Yields are rising for a variety of reasons, chief among them oil prices. The war with Iran has left many oil tankers stranded in the Persian Gulf instead of delivering crude oil to customers around the world, driving up crude oil prices.
The price of a barrel of Brent crude oil, the international standard, rose as high as $112 overnight after President Donald Trump told Iran on his social media platform on Sunday, “The clock is ticking and they better act FAST or there will be nothing left of them.”
Prices fell on hopes the two sides could reach a deal that would get oil flowing again around the world. The barrel price of Brent crude oil rose to $110.80, an increase of 1.4 percent compared to Friday. This is well above its pre-war price of about US$70.
This decline in oil prices helped revive the stock markets, which had not yet completed transactions, and France’s CAC 40 index went from a loss of 1.2 percent to an increase of 0.4 percent. At this point, Japan’s Nikkei 225 index had already finished down 1 percent, while Hong Kong’s Hang Seng index closed down 1.1 percent.
On Wall Street, Dominion Energy rose on the U.S. stock market after it agreed to acquire NextEra Energy in an all-stock deal to create the world’s largest regulated electric utility by market value. Dominion rose 8.3 percent and NextEra fell 6.7 percent.
Boston Scientific rose 5.3 percent after it said it would spend $2 billion by the end of June on its previously announced $5 billion share buyback program. Such acquisitions send cash directly to investors and increase the company’s earnings per share.
Delta Air Lines rose 0.5 percent, helped by lower oil prices and news that Berkshire Hathaway is buying more than $2.6 billion worth of the airline’s shares. Under its former leader, Warren Buffett, Berkshire Hathaway gained a reputation as a value investor able to buy stocks at low prices.
It was Regeneron Pharmaceuticals that fell on Wall Street. It fell 9.7 percent after reporting discouraging data from a trial of a melanoma treatment.
We’ll be offering little data on the U.S. economy next week, but the highly anticipated report on Nvidia’s latest quarterly results will arrive on Wednesday. While the chip company routinely beats analysts’ expectations every quarter, it’s projecting bigger growth than Wall Street thought. AI stocks will likely need to keep up this momentum to push the market to more records.
Target, Home Depot and Walmart will also report their latest quarterly results this week.
In the bond market, the yield on the 10-year Treasury note rose from 4.59 percent to 4.60 percent at the end of Friday. It rose up to 4.63 percent on a night when oil prices were high.
The yield on the 10-year Japanese government bond rose to its highest level since the late 1990s.
Yields around the world are rising due to fears of higher inflation caused by higher oil prices; This could push central banks not only to abandon the idea of lowering interest rates, but also to consider raising them. Higher rates could slow inflation, but at the cost of hurting the economy and lowering stock and other investment prices.
A spate of solid reports on the U.S. economy lately, along with concerns about the U.S. government’s large and growing debt problem, have been pushing yields higher.
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