Wall Street seesaws, Oil below $US100; ASX set to jump
Stan Choe
U.S. stocks have recouped most of their early losses on growing concerns about whether the global economy can withstand a rise in oil prices that briefly reached nearly $120 a barrel.
Wall Street had initially followed global markets with a steep decline in trade and continues to twitch and quickly reverse amid all the uncertainty caused by the war with Iran.
The S&P 500 fell 0.6 percent after falling as much as 1.5 percent in the morning. The Dow Jones Industrial Average fell 492 points, or 1 percent, and the Nasdaq composite fell 0.3 percent after falling as much as 1.5 percent earlier. Australian share market poised to claw back some of previous session’s heavy losses; Futures point to a 118-point, or 1.4 per cent, rise at the open at 5.07am AEDT. The ASX lost 2.9 per cent on Monday as panic spread across global markets.
Since the war with Iran started with the attacks of the USA and Israel, the main concern of financial markets has been how much oil prices will rise and how long they will stay there. On Monday, the price of a barrel of Brent crude oil, the international standard, briefly touched $119.50. It hasn’t been this expensive since Russia invaded Ukraine in 2022, another military conflict that raises the risk of a blockage in global oil flows.
If oil prices remain high for too long, household budgets, already strained by high inflation, may break under the pressure. Companies, meanwhile, will see their own bills increase for fuel and for stocking products on store shelves or in data warehouses. All of this increases the possibility of the worst-case scenario for the global economy, namely “stagflation” in which growth stagnates and inflation remains high.
Of course, oil prices quickly regained their huge gains. Brent crude oil fell to $98.75 a barrel, but this figure is still up 6.5 percent compared to Friday. Meanwhile, the barrel of benchmark US crude oil rose by 4 percent to $94.55 after briefly rising to $119.48.
The U.S. stock market has a history of rebounding relatively quickly from past military conflicts, such as Russia’s invasion of Ukraine in 2022, as long as oil prices don’t stay too high for too long. Despite recent market volatility, the S&P 500 index, which is at the heart of many retirement accounts, is still within 4 percent of the record set in January.
Some professional investors continue to argue that declines in stock prices may present an opportunity to buy stocks at cheaper levels before they rise again. Monday’s rapid recovery of losses in U.S. stocks was similar to the big swings that shook Wall Street last week, all triggered by shifts in oil prices.
“We continue to believe that the current acute oil shortage will be reversed in the coming months as new supply comes online and oil falls significantly,” said Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute.
But all of this depends on oil flows returning to normal. It’s far from that right now.
Consider the Strait of Hormuz, a narrow waterway off the coast of Iran through which one-fifth of the world’s oil passes on a typical day. Tanker traffic has almost completely stopped due to concerns about a possible attack by Iran.
If the strait remains closed for just a few weeks, the oil price could rise as high as $150 per barrel, according to oil and gas strategists at Macquarie Research.
“We do not attempt to predict how long the Hormuz transit will be significantly or completely shortened, but we have growing confidence that without an agreement and a rapid cessation of all kinetic activity, the crude oil market will begin to break down in a matter of days, not weeks or months,” strategists led by Vikas Dwivedi wrote in a report.
The most immediate pain on Wall Street is that companies that already have large fuel bills are being affected.
Carnival suffered a 3.4 percent loss due to having to refuel its massive cruise ships, while United Airlines collapsed by 3.2 percent.
Helping to limit the US stock market’s losses was Live Nation Entertainment, which rose 4.2 percent. The company behind Ticketmaster has reached a settlement with the US Department of Justice in a case alleging an illegal monopoly over live events in the country.
Shares fell further on overseas stock markets, where economies are more dependent on oil and natural gas imports. South Korea’s Kospi lost 6 percent, Japan’s Nikkei 225 lost 5.2 percent, and France’s CAC 40 lost 1 percent.
China’s special envoy for the Middle East, Zhai Jun, called for an end to the attacks and said attacks on non-military targets and civilians should be condemned. Meanwhile, South Korean President Lee Jae Myung warned against hoarding, panic buying and secret deals between refineries and gas stations.
Over the weekend, both sides of the war struck new targets, including civilian targets. Bahrain accused Iran of damaging one of its desalination plants vital for drinking water in the Gulf countries. The national oil company declared force majeure following the attack on the country’s only oil refinery. Israel hit oil depots in Tehran, creating dense smoke and causing environmental warnings.
President Donald Trump said late Sunday that high oil prices right now are worth the cost.
In his post on the social media network, he said, “Short-term oil prices, which will drop rapidly if the Iranian nuclear threat is eliminated, is a very small price to pay for the USA, the World, Security and Peace.”
In the bond market, the yield on the 10-year Treasury note fell from 4.15 percent to 4.13 percent at the end of Friday.
Concerns about higher inflation and oil prices are pushing Treasury yields higher, and the 10-year yield was above 4.20 percent early Monday. But concerns about a potentially slowing economy are also easing. On Friday, a discouragingly weak report on the U.S. labor market showed that employers cut more jobs than they added last month.
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