Wall Street slumps, oil rocks global markets; ASX set to rise
Stan Choe
Oil prices rose again due to the war with Iran, its grip on the global economy tightened, and stock markets around the world began to decline.
Brent crude, the international standard, briefly rose above US$119 ($168.70) per barrel in the morning before falling to US$110.90, still up 3.2 per cent from the previous day. US crude rose 2.2 percent to $98.40 a barrel after Iran intensified its attacks on oil and gas facilities around the Persian Gulf in response to Israel’s attack on a key Iranian natural gas field.
The attacks have raised fears that the conflict could halt oil and gas production in the Gulf for a long time, causing high prices to persist for some time and causing inflation to rise further around the world.
On Wall Street, the S&P 500 fell 0.7 percent and was heading for its fourth consecutive losing week, which would be its longest losing streak in a year. The Dow Jones lost 418 points, or 0.9 percent, while the Nasdaq composite fell 0.8 percent. Stock indices fell 2.8 percent in Germany and 2.3 percent in the UK.
The Australian share market is poised for a decline, with futures at 4.45am (AEDT) pointing to a loss of 52 points, or 0.6 per cent, at the open. The ASX fell 1.7 per cent on Thursday. The Australian dollar was trading at 70.56¢ at 5.08am AEDT.
President Donald Trump and countries around the world have made moves to stem the rise in oil prices, but these mostly consist of short-term corrections as markets want to see less risk to oil and gas fields around the Gulf and the clearing of the Strait of Hormuz off the Iranian coast, where a fifth of the world’s oil usually travels.
Concerns about oil prices are so high that traders are now even counting on the slim chance that the Federal Reserve may have to raise interest rates this year. That’s a dramatic reversal from before the war, when traders were betting heavily that the Fed would cut interest rates multiple times this year.
Interest rate cuts could stimulate the economy and investment prices, something Trump angrily wants, but they would run the risk of worsening inflation. The Fed decided to delay cutting interest rates at its last meeting on Wednesday, and traders found comments from Chairman Jerome Powell discouraging about the possibility of a rate cut in 2026.
According to data from CME Group, traders estimate there is an 80 percent chance that the Fed will raise its key interest rate by 8 percent by the end of the year and at least keep it steady. Just a month ago, the same investors were betting on a 74 percent chance of two or more outages.
This pushed Treasury yields higher, with the two-year Treasury yield reaching its highest level since the summer.
The more widely followed 10-year Treasury yield rose from 4.26 percent to 4.28 percent at the end of Wednesday, from 3.97 percent before the war with Iran began. Earlier in the day, the Bank of Japan, the European Central Bank and the Bank of England kept interest rates steady.
Along with the threat of higher inflation, several solid reports on the U.S. economy also helped push Treasury yields higher. One said fewer U.S. workers applied for unemployment benefits last week at a time when economists expected a slight increase. Another said manufacturing growth in the mid-Atlantic region had accelerated unexpectedly.
High Treasury yields have already pushed up interest rates on mortgages and other types of loans, and a report on Thursday showed that new U.S. home sales unexpectedly weakened in January.
Higher Treasury yields also negatively impact the prices of all kinds of investments, from stocks to crypto to gold. Gold fell 6.1 percent to $4,598.80 per ounce, reaching its lowest level since early February. Silver fell further, falling 9.3 percent.
Shares of companies that mine such metals fell to some of Wall Street’s sharpest losses. Newmont fell 8.6 percent and Freeport-McMoRan fell 4.8 percent.
Micron Technology fell 3.6 percent even though it reported a boom with profits and revenue that were much higher than analysts expected. It has given back some of its huge gains for the year, down about 62 percent so far due to a worldwide shortage of computer memory.
Helping limit Wall Street’s losses was Rivian Automotive, up 2.7 percent. It announced a partnership in which Uber will invest up to US$1.25 billion ($1.8 billion) in the company and expects to purchase 10,000 autonomous robotaxis. Uber Technologies fell 1.2 percent.
