Asia stocks turn cautious as reality intrudes in Gulf
Asian stock markets were in a more sober mood on Thursday; Cracks are rapidly appearing in the fragile Gulf ceasefire, pushing oil prices higher and reminding investors that inflationary effects will linger for a long time.
There have been few signs that the Strait of Hormuz is open in any meaningful way as Iran expands its control over the vital oil artery and demands tolls for safe passage.
“A fifth of the world’s oil supply still passes through a corridor under the influence of one of the parties to the conflict,” said deVere Group CEO Nigel Green.
“This is not stability. You don’t need a complete blockade to send oil markets sharply higher again.
“Missiles are still being launched in the Gulf, Israel is still busy on another front, yet markets are behaving as if the region has returned to normal.”
As a result, US crude futures prices rose 2.8 per cent to US$96.99 per barrel (A$A137.50), while Brent rose 2.1 per cent to US$96.74 (A$A137.15).
Japan’s Nikkei index followed a horizontal course after rising 5.4 percent in the previous session. South Korea fell 0.4 percent after a 6.8 percent jump. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.3 percent.
On Wall Street, S&P 500 futures and Nasdaq futures traded down 0.2 percent as Wednesday’s rally faded.
For a mixed Europe, EUROSTOXX 50 futures were up 0.1 percent, DAX futures were down 0.3 percent and FTSE futures were up 0.5 percent.
While oil prices are still around 40 percent of pre-conflict levels, an increase in inflation is about to emerge in hard data around the world.
Figures on U.S. core prices for February to be released late Thursday are expected to show a significant 0.4 percent increase for the second month, and that was before the rise in energy costs.
Minutes of the Fed’s last policy meeting showed a growing number of members thought a rate hike might be needed to control inflation, but many still hoped the next move would be a rate cut.
This moderated the rise in Treasuries, which remained modest compared to the big gains seen in European debt markets. The yield on US 10-year bonds was at 4.29 percent, compared to 3.96 percent before the Iranian attack.
Having given up on a 50 basis point rate cut since the end of February, Fed fund futures point to only 7 basis points of easing for the rest of this year.
“The committee generally agrees that it is too early to act, suggesting that the Fed will likely remain on hold this year, in our view,” analysts at JPMorgan said in a note.
They also saw that the risks would shift to a single interest rate hike by the European Central Bank this year, rather than two.
The changing outlook on rates led to the dollar regaining some of its sudden losses; The euro remained steady at US$1.1660 (A$A1.6530), falling short of its peak of US$1.1721 (A$A1.6617).
The dollar was steady at 158.60 yen, falling as low as 157.89 at one point on Wednesday.
In commodity markets, gold was steady at $4,718 ($6,689) an ounce after rising as high as $4,777 ($6,772) overnight.
