(March 4): A selloff in stocks and bonds was trimmed as assurances on American action to secure shipping lanes through the Strait of Hormuz amid the Iran war pared what had been an over 9% surge in oil.
Following an earlier slide in the S&P 500 that reached 2.5%, the equity benchmark dropped less than 1%. President Donald Trump said the US will escort and insure tankers and other vessels through the world’s most-critical energy chokepoint. Oil prices waned in post-settlement trading, with Brent trading near US$80 a barrel.
“No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD,” Trump posted on social media.
The latest development helped reduce fears of a major global supply shock, easing inflation jitters while fading a surge in Treasury yields, according to Adam Turnquist at LPL Financial.
“For now, markets are trading headline to headline,” said Fawad Razaqzada at Forex.com. “Much will depend on whether tensions stabilize — or whether this proves to be the start of a more prolonged disruption to global supply.”
The war in the Middle East reverberated across the region, with Israel bombarding Tehran in a fresh wave of strikes. The Islamic Republic fired missiles at Qatar, Bahrain and Oman, with Doha saying targets weren’t limited to military interests. Qatar and Iraq halted production at major energy sites.
See also: US stocks and bonds sink as oil surge rattles traders
With the conflict disrupting shipments, fuel costs have been on the rise. A sustained surge in prices for diesel — used in freight, power and heating — could add to the cost of transportation — a key inflation component. Gasoline has also surged, intensifying those risks.
The Dow Jones Industrial Average lost almost 1,300 points before paring its slide to around 400 points. The yield on 10-year Treasuries rose three basis points to 4.06%. The dollar added 0.6%.
The choppy trading and wide intraday ranges show investors are struggling to price in the risks from the conflict in Iran, according to Will Compernolle at FHN Financial.
See also: Target surprises with upbeat forecast on improving demand
“You do have to let these things settle, and it could take a couple of weeks,” said Nancy Tengler at Laffer Tengler Investments. “I don’t think this is the beginning of a bear market.”
Barring a prolonged disruption of oil supplies, the conflict is unlikely to end the cyclical stock bull market by itself, according to Ed Clissold and Thanh Nguyen at Ned Davis Research, which has tracked crisis events for decades.
While there’s a prevailing fear that a significant oil spike could trigger a recession, history suggests that’s not a foregone conclusion, said Jeffrey Yale Rubin at Birinyi Associates Inc. Since 1989, there have been several instances when crude prices doubled without forcing the economy into a downturn, he noted.
Generally speaking, military actions cause a short-term disruption in markets, but as long as the economic damage is limited, they fully recover once there is more clarity in the scope of the intervention, according to Chris Zaccarelli at Northlight Asset Management.
“It is too soon to tell how events will unfold this month, but we are looking for opportunities to present themselves if traders overreact and throw the baby out with the bathwater,” he said.
Corporate highlights:
- CrowdStrike Holdings Inc. projected quarterly sales that were roughly in line with estimates.
- Target Corp forecast better-than-expected profit for the full year.
- Best Buy Co reported profit for the holiday-shopping season that beat estimates.
- Apple Inc updated the MacBook Air and MacBook Pro, adding faster processors and raising prices.
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What Bloomberg strategists say...
“The floor for the SPX is expected to be 6,600, where positioning lightens, but dealer hedging flows and increasingly negative gamma will make the area below 6,800 much more choppy.” —Michael Ball, Macro Strategist, Markets Live.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.9% as of 4pm New York time
- The Nasdaq 100 fell 1.1%
- The Dow Jones Industrial Average fell 0.8%
- The MSCI World Index fell 1.6%
Currencies
- The Bloomberg Dollar Spot Index rose 0.6%
- The euro fell 0.6% to US$1.1614
- The British pound fell 0.4% to US$1.3360
- The Japanese yen fell 0.2% to 157.69 per dollar
Cryptocurrencies
- Bitcoin fell 2% to US$68,035.32
- Ether fell 3.7% to US$1,967.97
Bonds
- The yield on 10-year Treasuries advanced three basis points to 4.06%
- Germany’s 10-year yield advanced four basis points to 2.75%
- Britain’s 10-year yield advanced 10 basis points to 4.47%
Commodities
- West Texas Intermediate crude rose 4.7% to US$74.59 a barrel
- Spot gold fell 4.2% to US$5,098.56 an ounce
Uploaded by Jason Ng
