Stocks fall, oil surges as US inflation jumps and Israel strikes gas facilities

AFP | London

Email: mail@newsofbahrain.com

Stocks markets fell and oil prices surged Wednesday after a closely watched US inflation gauge came in hotter than expected and Iran said that Israel struck one of its gas facilities.

Brent oil rose five% to over $108 a barrel after Iran vowed to hit energy facilities throughout the Gulf in retaliation to what it said was an Israeli attack on a facility on the Gulf coast serving a massive gas field it shares with Qatar.

The three main US stock indexes all opened lower, and European stock markets reversed earlier gains.

The US Labor Department reported before the start of trading that the Producer Price Index (PPI) rose 0.7% from the previous month, much faster than the 0.3% increase expected by analysts, and further clouding the outlook for interest rate cuts.

"The key takeaway from the report is that the uptick in producer prices was seen in both goods and services, and the added point is that this higher inflation occurred before the war with Iran and subsequent surge in energy prices, which will foment concerns about a worsening inflation situation," said Patrick J. O'Hare, an analyst at Briefing.com.

The PPI report came just ahead of a slew of meetings of the world's top central banks, with the US Federal Reserve gathering later Wednesday, to be followed on Thursday by the European Central Bank, the Bank of England and the Bank of Japan. While they were all expected to keep rates steady, the latest inflation reports could lead to more hawkish comments from the central bankers.

“The (ECB’s) Governing Council will not want to risk a repeat of 2022 when inflation risks were initially underestimated and perhaps contributed to the eventual surge to double digit inflation,” said GianLuigi Mandruzzato, senior economist at EFG Asset Management.

Markets have been pricing in one rate cut this year in the United States, but could be forced to shift positions if Fed policymakers do so given the surge in energy prices.

The dollar, which had been little changed ahead of the Fed meeting, rose on news of the latest Israeli attacks.

Earlier Wednesday, oil prices had fallen slightly after Iraq said it had resumed limited oil exports through the Turkish port of Ceyhan, using a pipeline that avoids the effectively shut Strait of Hormuz, through which a fifth of global oil flows.