Global equity markets advanced on Monday even as oil prices fell but still traded near multi-month highs as markets shrugged off the effects of the US attacks on Iranian nuclear sites.
Wall Street’s main indexes were all trading higher, with 9 out of 11 of the benchmark S&P 500 subsectors advancing. Energy equities were the biggest losers on the session.
The Dow Jones Industrial Average rose 0.17% to 42,279.55, the S&P 500 rose 0.48% to 5,996.40 and the Nasdaq Composite rose 0.61% to 19,565.74. European shares were down 0.2%. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.66% overnight. MSCI’s gauge of stocks across the globe rose 0.28%. Israel bombed Evin prison in northern Tehran on Monday, a potent symbol of Iran’s governing system, and Revolutionary Guard command centers responsible for internal security in the Tehran area. Iran repeated earlier threats to retaliate against the United States. Its parliament approved the closure of the Strait of Hormuz, a major shipping lane in the global oil trade. “The market being higher signals a risk-on sentiment, which is somewhat surprising considering that we had a series of very volatile events over the weekend with US participation in the (Iran) bombing efforts with Israel,” said Andrew Wells, chief investment officer at SanJac Alpha in Houston.
“The lesson we take from this is that these headline events are having less and less effect on the market since tariffs went on – the so-called Liberation Day – which was the big volatile event.” Brent crude futures fell 0.83% to $76.37 a barrel. US West Texas Intermediate crude fell 0.88% to $73.14. The Brent and WTI crude benchmarks touched five-month highs of $81.40 and $78.40, respectively. The Strait of Hormuz is only about 33 km (21 miles) wide at its narrowest point and around a quarter of global oil trade and 20% of liquefied natural gas supplies pass through it. Federal Reserve Vice Chair for Supervision Michelle Bowman said on Monday the time to cut interest rates appeared imminent as she was increasingly worried about labour market risks and was less concerned that high import taxes would cause an ongoing inflation problem. The dollar strengthened 0.41% to 146.68 against the Japanese yen and weakened 0.39% to 0.814 against the Swiss franc. The euro was up 0.09% at $1.1532, rebounding from earlier losses following Bowman’s comments.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.19%.
Gold prices fell. Spot gold rose 0.56% to $3,387.00 an ounce. US gold futures rose 0.5% to $3,385.10 an ounce.
The dollar fell on Monday after Federal Reserve Vice Chair for Supervision Michelle Bowman said that the US central bank should consider rate cuts soon, reversing the dollar’s earlier rally following the US bombing of some nuclear sites in Iran.
Bowman said the time to cut interest rates may be fast approaching as she has grown more worried about risks to the job market and less concerned tariffs will cause an inflation problem.
The dollar had been boosted by the Federal Reserve’s “hawkish hold” on Wednesday, when the US central bank left interest rates unchanged while Chair Jerome Powell said policymakers expect inflation to rise over the summer due to the Trump administration’s tariffs.
Powell will testify before the US Congress on Tuesday and Wednesday.
The US currency was earlier lifted as investors unwound riskier positions on concerns about an expanding conflict in the Middle East.
Iran has pledged to retaliate for the bombings and has threatened to close the Strait of Hormuz, through which about a fifth of global oil supply flows.
The dollar gains were largely due to traders unwinding trades that had used it as a funding currency, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. These included trades betting on strength in riskier emerging market currencies.
“What it really is about is unwinding these funding trades, where the dollar is a short leg of the trade,” said Chandler, adding that “I don’t think it’s a big turn in the dollar.” The Japanese yen, meanwhile, fell on concerns about higher oil costs.
Bank of America strategists said the dollar/yen can reprice higher if oil prices remain elevated, noting Japan imports almost all of its oil, more than 90% of which comes from the Middle East, while the US is largely energy-independent.
The Japanese currency was last down 0.45% against the US dollar at 146.77 per dollar and reached 148.02, the weakest since May 13.
The dollar index fell 0.14% to 98.78. It earlier rose to 99.42, the highest since May 30.
Goldman Sachs FX analysts said on Monday that the Norwegian crown, Canadian dollar and Colombian peso should be among the clearest beneficiaries from rising oil prices, while the Swiss franc is often among the best performers during geopolitical risk off episodes.
However, “there has been no clearly identifiable pattern in this morning’s price action between currencies’ moves and their historical sensitivities to oil or risk,” they said in a report, likely due to muted market reactions in assets including oil, gold and stocks.
Agencies
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