By Mike Dolan
March 3 –
What matters in U.S. and global markets today
By Mike Dolan, Editor-At-Large, Finance and Markets
Day three of the escalating Middle East war continues to rattle world markets and there are no signs yet of when or where the widening regional conflict may end – only a running assumption that it will be measured in weeks and not just days.
Energy prices remain the epicenter of the financial transmission, and crude oil is climbing again as shipping, oil and gas installations and military and civilian targets are hit as Iran continues to retaliate to the weekend strikes.
I’ll get into that and more below.
But first, check out my latest column on what’s really driving the recent dollar rally.
And listen to the latest episode of the Morning Bid daily podcast. Subscribe to hear Reuters journalists discuss the biggest news in markets and finance seven days a week.
HORMUZ HAZE HITS MARKETS
Brent crude hit a 14-month high and, at $82.37 per barrel, it’s $10 higher than at Friday’s close. U.S. crude hit 8-month highs at $75.55 per barrel, but markets are awaiting a planned government announcement on Tuesday on plans to offset the impact on U.S. consumers.
The details of that are unclear but could include a release of the U.S. Strategic Petroleum Reserve or some form of domestic subsidies.
The bounceback in Wall Street stocks on Monday saw the S&P 500 return to opening levels, led by the tech sector. But that had the feel of programmatic trading hinged on ‘buy the dip’ models trained on the relatively short-lived energy price spikes seen in recent Middle East conflicts.
And this one looks very different. Wall Street stock index futures are back down almost 2%. Stocks across Europe and Asia tumbled sharply today. Japan’s Nikkei, the eurozone Stoxx index, and Britain’s FTSE 100 all plunged about 3%, while South Korea’s high-flying Kospi plummeted 7% on Seoul’s return from holiday on Monday.
Any thought of a safety bid in sovereign bonds has been quickly brushed aside too, with U.S. Treasury yields on the rise across the curve and the 10-year now up 13 basis points from Friday’s close.
Markets are now not expecting another Federal Reserve rate cut until September, and there are doubts about whether there’ll be a second this year – with just 42bps of cuts priced in by December.
Traders are also busily pricing out any possibility of another European Central Bank rate cut. Aggravating that picture was Monday’s report showing U.S. manufacturers already registering a sharp spike in input prices in February to their highest levels since 2022 – even before this latest oil surge.
And ECB-watchers digested a higher-than-forecast flash inflation reading for the eurozone for last month, too.
Elsewhere, the dollar continues to benefit by default on relative energy impact calculations – with the euro down to its lowest point in six weeks on worrying natural gas price gains in the bloc. The region’s benchmark natural gas price hit its highest in three years on Tuesday – up some 30% year-on-year.
The Bank of Japan warned of possible intervention to arrest yen weakness, while the Swiss National Bank said it was more willing to intervene to counter the safe-haven franc’s rise. The resulting fallback in the franc tallied with a curious retreat in gold.
Chart of the day
As the Middle East conflict gripped the whole region this week, Qatar condemned Iranian attacks on its territory and said it reserves a full right to respond.
Attacks on its energy infrastructure have seen natural gas prices spike this week, given that Qatar is the world’s third-biggest exporter of liquefied natural gas. European natural gas benchmarks hit their highest in three years on Tuesday.
Today’s events to watch
* New York Fed’s John Williams, Kansas Fed’s Jeffrey Schmid, and Minneapolis Fed’s Neel Kashkari all speak
* U.S. corporate earnings: Best Buy, Target, CrowdStrike
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(By Mike Dolan)
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