(March 16): Oil rose while US stock futures edged lower in early Monday trading after a US attack on Iran’s main export hub heightened risks to supply across the Middle East.
S&P 500 and Nasdaq 100 futures slipped about 0.2% at the open. West Texas Intermediate crude rose 2% after the US bombed military targets on Kharg Island, the terminal handling almost all of Iran’s oil exports. Futures signaled stocks in Australia, Japan and Hong Kong may open lower, while the dollar edged down against major peers.
The strike threatens to inject fresh volatility into energy markets already grappling with some of the biggest swings in oil in decades. Oil’s surge since the war began has rippled across asset classes, pushing Treasury yields higher on inflation concerns, lifting the dollar and weighing on global equities.
“I would think this significantly heightens the risk of higher-for-longer energy prices and meaningfully raises inflation and growth risks,” said Justin Lin, an investment strategist at Global X ETFs Australia. “The resumption of energy flows is only possible if infrastructure remains largely intact.”
President Donald Trump said late Friday that US forces struck military targets on Kharg Island and warned attacks could expand to energy infrastructure if Tehran interferes with transit through the Strait of Hormuz. Traffic through the narrow waterway has nearly halted since the war began, and Iran’s supreme leader said the strait should remain shut if the conflict continues.
Meanwhile, the International Energy Agency indicated oil from an unprecedented stockpile release will be made available immediately in Asia as buyers scramble to replace disrupted Middle East supply.
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On Sunday, Kevin Hassett, head of the White House’s National Economic Council, said the Pentagon estimates the Iran mission could take four to six weeks to complete and that the US is ahead of schedule.
Inflation risks are likely to be a key focus for markets this week as eight of the world’s 10 major central banks deliver policy decisions. The Reserve Bank of Australia is expected to raise rates for a second straight month, while other policymakers may hold steady as they wait for clarity on how long the conflict will last.
Market stress is building at the fastest pace since April’s tariff shock. A Bank of America Corp index of options-implied volatility across equities, rates, currencies and commodities jumped last week to a level just below its peak reached during the turmoil triggered by Trump’s rollout of aggressive levies 11 months ago.
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Brent crude, the global benchmark, has surged 40% since the end of February, prompting investors globally to reassess risk with the fighting now in its third week. Global stocks have slid more than 5% since the war broke out, led by Asian markets. The S&P 500 Index has declined three straight weeks and sits 5% below a record reached in January.
In fixed income, US Treasuries have given up their returns for the year. benchmark 10-year bonds have jumped more than 30 basis points in March, closing at 4.28% on Friday. Yields on two-year notes are trading near their highest since September as oil-linked inflation risks saw a rapid paring of Federal Reserve rate cut expectations. The dollar is trading at its strongest in three months.
“FX markets are digesting the latest Middle East developments through two main channels, namely a spike in global risk aversion and higher oil and gas prices,” Barclays strategists led by Themistoklis Fiotakis wrote in a note to clients. “Given the shift in sentiment and magnitude of the moves already registered, it may require another leg up in risk aversion and oil to justify a stronger US dollar from here.”
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