Wall Street falls as oil prices jump; ASX set to slump; Aussie dollar tumbles
Stan Choe
Updated ,first published
The Dow Jones Industrial Average fell more than 1,000 points on Thursday after the price of oil rose to its highest level since the summer of 2024 due to the war with Iran.
The Dow fell 1,066 points, or 2.2 percent, and its sharp losses accelerated throughout the day. The S&P 500, the benchmark of the U.S. stock market tracked by many retirement accounts, fell 1.2 percent, while the Nasdaq composite fell 1.1 percent with about an hour left in trading.
The Australian share market is set to crash, with futures pointing to a loss of 131 points, or 1.5 per cent, at the open at 7.33am AEDT. The ASX gained 0.4 per cent on Thursday. The Australian dollar fell below 70¢ and was down 1.2 per cent to 69.88¢ at 05.10 AEDT.
Financial markets are again following oil prices. They are adding to the pressure because of concerns that a long-term rise could sap households’ ability to spend, negatively impact the global economy and push interest rates even higher.
The barrel of Brent crude oil, the international standard, rose by 3.8 percent to $84.52. This was close to $70 at the end of last week. The benchmark US crude oil rose by 5.9 percent to $79.07 per barrel.
Oil prices rose after Iran launched a new wave of attacks against Israel, American bases and regional countries. The escalation of the war raises concerns about how long the disruptions in oil and natural gas production and transportation in the region will last.
Prices at gas pumps in the US have already skyrocketed because of them. The average price of a gallon rose 9 percent to $3.25 from $2.98 a week ago, according to auto club AAA.
Of course, the U.S. stock market has a history of rebounding relatively quickly following conflicts in the Middle East and elsewhere. This suggests that many professional investors should be patient and adapt to the fluctuations of the market.
“While further increases remain a risk, we think more likely is an increase in market risk aversion that will last for a short period of time until investors see an end to hostilities,” according to Scott Wren, senior global market strategist at Wells Fargo Investment Institute.
But if oil prices rise to $100 per barrel and stay there, it may be too much for the global economy to bear. This week’s sharp fluctuations were caused by uncertainty on this issue, and much will depend on what happens in the Strait of Hormuz. About one-fifth of the world’s oil usually passes through the narrow waterway off the coast of Iran.
Retailer stocks slumped to some of the worst losses in the U.S. market on Thursday. High gas prices mean customers will have less money to spend on other things.
American Eagle Outfitters fell 11.8 percent in the latest quarter even though it reported stronger profits and revenue than analysts expected.
Airlines also suffered serious losses. The war has left hundreds of thousands of travelers stranded in the Middle East, while high oil prices have increased already large fuel bills.
American Airlines lost 5.2 percent, United Airlines lost 6 percent and Delta Air Lines lost 5.5 percent.
Meanwhile, stocks of small companies suffered the heaviest losses. This is normal in times of increased concern about the strength of the economy and rising interest rates. The Russell 2000 index of smallest stocks fell 1.9 percent.
Wall Street’s decline would have been worse without Broadcom. Shares of the chip company rose 5.5 percent after reporting stronger profit and revenue than analysts expected in the latest quarter. It’s one of Wall Street’s most influential stocks because it’s one of the largest by total value, and CEO Hock Tan said it was benefiting from a 74 percent increase in revenue from AI chips.
In the bond market, Treasury yields have risen as rising oil prices put more upward pressure on inflation, which could keep the Federal Reserve from lowering interest rates.
The yield on the 10-year Treasury note rose to 4.14 percent, from 4.09 percent at the end of Wednesday and from 3.97 percent before the war with Iran began.
The Fed may keep interest rates high to keep inflation under control. But higher interest rates will also make it more expensive for U.S. households and companies to borrow money, negatively affecting the economy.
The central bank had stated that it planned to continue interest rate cuts later this year in the hope of stimulating the employment market and the economy. Due to the war and high oil prices, traders postponed their predictions that the Fed might start cutting interest rates again until the summer months.
Various reports on the US economy were also mixed.
Fewer U.S. workers applied for unemployment benefits last week than economists expected, one said. This is an encouraging signal for the job market.
As for foreign stock markets, indices in Asia recovered after their historic losses the day before. South Korea’s Kospi index jumped 9.6 percent to offset most of the 12.1 percent decline, its worst decline since Wednesday.
However, as oil prices began to accelerate in Europe, the indices fell. France’s CAC 40 index fell 1.7 percent and Germany’s DAX index fell 1.8 percent.
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