NEW YORK/LONDON – US and European shares fell on Aug 14 and oil prices rose more than US$1 a barrel as markets monitored tense US-Iran talks and digested new data that dented expectations for a Federal Reserve rate hike next month.
Faltering talks to end the Iran war left oil and gas prices poised for sizeable weekly gains. The US threatened to ramp up economic pressure on Iran, including extending a naval blockade.
US consumer sentiment deteriorated in early August amid the rising cost of living because of the Middle East conflict, a survey showed on Aug 14.
The US dollar fell on a surprise drop in US retail sales, supporting gold prices. The data further reduced expectations of a Federal Reserve rate hike at next month’s meeting.
US Treasuries fell on Aug 14 after an initial rally driven by the retail sales data lost momentum.
The S&P 500 fell from record highs, under pressure as shares in chip equipment maker Applied Materials declined, to end the session down 0.17 per cent at 7,785.76 points. Chipmakers including Broadcom and Intel also dropped.
The Nasdaq declined 0.28 per cent to 26,729.16 points, while the Dow Jones Industrial Average declined 0.20 per cent to 53,732.41 points.
“A lot of the drivers in the market right now are around various parts of AI,” said Thomas Martin, senior portfolio manager at GLOBALT Investments in Atlanta.
European shares finished lower on Aug 14 and snapped a four-week winning streak, as rising crude prices and renewed geopolitical tensions offset support from a resilient earnings season.
MSCI’s gauge of stocks across the globe fell 0.79 points, or 0.07 per cent, to 1,160.01.
MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.29 per cent higher at 1,640.08.
Geopolitical risk
“The markets round out the week on a positive note, with relatively thin event risk on the economic and corporate calendar. But of course, it’s a Friday, and the typical pattern has been for geopolitical risks, or at least bombastic rhetoric, to pick up between the US and Iran going into the weekend,” Capital.com strategist Kyle Rodda said.
“Currently, the geopolitical uncertainty remains the only major macro roadblock to a market experiencing strong tailwinds from earnings and the monetary policy outlook,” Rodda said.
Brent crude oil futures settled at US$88.52 a barrel, up 1.67 per cent. US futures finished at US$82.40, up 1.42 per cent.
John Sidawi, senior portfolio manager for fixed income at Federated Hermes, said a puzzling feature of markets in recent months has been the growing disconnect between geopolitical uncertainty and asset price volatility.
“For now, markets appear willing to tolerate a significant amount of uncertainty without demanding higher risk premiums. However, this equilibrium is unlikely to be permanent,” Sidawi said.
“A meaningful escalation in conflict or a clear path toward resolution could finally force investors off the sidelines, potentially triggering a much larger volatility response than current market pricing implies.”
Yen stuck in intervention loop
In currencies, the yen strengthened 0.1 per cent against the greenback to 159.33, after a Reuters report that the Bank of Japan could raise rates as soon as September, according to three sources familiar with policymakers’ thinking.
However, it is still within sight of the 160 level that traders think could trigger another bout of yen buying from Tokyo, after joint intervention with the US last month failed to support the Japanese currency.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.28 per cent to 99.65, with the euro up 0.35 per cent at $1.1567.
Spot gold rose 0.53 per cent to US$4,374.27 an ounce, while US gold futures settled 0.4 per cent higher at US$4,437.30.
In bonds, the yield on benchmark US 10-year notes rose 4.72 basis points to 4.688 per cent. BLOOMBERG
