Oil retreats, stocks rise on cautious Mideast war hopes

AFP | London

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Oil prices fell and stock markets advanced Wednesday as Iran said it had allowed around two dozen ships to transit the Strait of Hormuz, easing concerns about the apparent impasse on ending the war in the Middle East.

Investor focus was also on Wednesday’s results update from AI chip giant Nvidia, due after the Wall Street close, that should offer a fresh assessment of a sector that has driven market optimism this year.

While Asian markets mostly fell in the wake of losses on Wall Street Tuesday, US and European indexes gained as bond yields fell back from inflation-driven highs.

“After several days of slipping, US stock markets turned their fortunes around ahead of Nvidia earnings as yields retreated and the price of crude dropped by over three% on hopes of progress being made in the Middle East,” said analyst Axel Rudolph at investing and trading platform IG.

The drop in oil prices subsequently deepened to around 5%. The main US contract, WTI, fell under $100 per barrel, but remained far above pre-war levels.

That has spurred worries that inflation could remain elevated even if a swift resolution to the Middle East war is found.

Government bond rates have reached the highest levels in decades on worries that the Middle East war will keep energy prices high well into this year, potentially derailing economic growth and pressuring government finances.

“Oil remains the central macro pressure point,” said Sucden Financial analyst Viktoria Kuszak.

“We expect the combination of higher yields, a firm dollar and unresolved energy risk to keep risk appetite constrained, with Nvidia earnings the next key test for equity sentiment,” she added.

Earlier Wednesday, a South Korea-flagged tanker transited the Strait of Hormuz, one of 26 that Iran’s Revolutionary Guards later said it had allowed to pass over the past 24 hours.

Since the United States and Israel began their war with Iran, the Strait of Hormuz -- an energy corridor through which 20% of global crude usually transits -- has been effectively closed to shipping.

A ceasefire on April 8 brought a halt to a conflict that has roiled the global economy, but with Washington and Tehran seemingly reluctant to resume the fighting a war of words has taken its place. In France, the chief of Credit Agricole, one of the country’s biggest banks, told investors Wednesday that given the economic and geopolitical turmoil “nothing is arguing for optimism”.

Olivier Gavalda warned at the bank’s shareholder meeting of likely interest rate hikes in Europe to counter growing inflation pressures, “which could lead to a decline in both consumer spending and investment. “The internal data we analyse suggests a steep drop in the business climate and a significant erosion in household confidence,” he added.