(March 18): US stocks fell Wednesday as Iran pledged to retaliate after Israel attacked a key natural gas field and US inflation data came in higher than expected ahead of the Federal Reserve’s interest-rate decision.
The S&P 500 Index is down 0.2% as of 9:59am in New York, ending a two-day rally. The tech-heavy Nasdaq 100 dropped 0.2%. Brent crude oil prices rose to about US$109. The Cboe Volatility Index hovered around 23 from highs last week.
“Global markets are effectively being held hostage by the developments in the Middle East, with inflation expectations rising and rate-cut expectations repricing significantly lower,” Jeffrey O’Connor, head of Americas market structure at Liquidnet said, noting the crisis is exacerbated by the AI disruption trade and concerns about private credit risks.
Iran warned countries around the Persian Gulf that some of their energy assets are at risk of missile strikes after Israel attacked its South Pars gas field, marking the first time Iran’s upstream oil and gas facilities were targeted in the war.
In the US, new data released Wednesday morning showed wholesale inflation accelerated last month. The producer price index unexpectedly rose 0.7% in February from a month earlier, signaling that cost pressures were increasing even before the conflict began.
Later on Wednesday, Fed officials will release their rate decision at 2pm New York time, with officials widely expected to hold rates steady. Following the policy announcement, investors will closely monitor chairman Jerome Powell’s comments about the economy, higher fuel prices and private credit amid conflict in the Middle East.
See also: Stocks stage cautious advance as oil tops US$96
“Markets will want a balanced tone that acknowledges inflation risks without signaling a more hawkish path,” said Tom Essaye of the Sevens Report.
Bond traders have priced in lower odds of a rate cut this year on rising oil prices and the PPI data.
Meanwhile, Iraq began exporting oil through a route that avoids the Strait of Hormuz, while Iranian strikes continued overnight following the assassination of its security chief, Ali Larijani, in an Israeli strike. The Strait of Hormuz looks unlikely to open without a truce in the war, though Iran has been moving its own oil through the waterway at levels broadly comparable to transit before the war began.
See also: US stocks gain as investors buy the dip while Iran war escalates
In other news, a multi-asset credit strategist at Pacific Investment Management Co said that mounting strains in the private credit market are a “wake-up moment,” making investors pay more attention to the liquidity risks they’ve taken.
Sectors to watch
- Memory stocks Micron Technology Inc, Sandisk Corp and Seagate Technology Holdings gained ahead of Micron’s highly-anticipated earnings report after the market close Wednesday.
- Optical components companies Applied Optoelectronics Inc, Lumentum Holdings Inc and Coherent Corp rallied as companies spoke at the Optical Fiber Communications Conference in Los Angeles.
- Crypto-linked stocks Gemini Space Station Inc and Strategy Inc dipped after Citi analysts lowered their bitcoin price forecast on slow legislation in the US.
Uploaded by Magessan Varatharaja
