Oil Rose on Middle East Uncertainty; U.S. Inflation Eyed

By Dow Jones Newswires Staff

Oil rose on continued uncertainty that a peace deal will be agreed to any time soon between the U.S. and Iran, while U.S. indexes hit new highs again Monday on rising energy and artificial-intelligence stocks. Treasury yields rose.

President Trump told reporters in the Oval Office Monday that the cease-fire with Iran was on life support and that he wouldn't back off his goal of pressing Iran to abandon its nuclear program.

Later Tuesday the U.S. is due to report inflation figures that are forecast to rise due to higher gasoline prices as the Strait of Hormuz remains effectively closed. Analysts' consensus in The Wall Street Journal's poll is for a headline inflation of 3.7% in April versus 3.3% in March.

--U.S. Futures are all down, with the tech-heavy Nasdaq 0.6% lower, the Dow Jones Industrial Average and S&P 500 down 0.06% and 0.3% respectively. The S&P and Nasdaq closed at new records Monday. Inflation data later Tuesday will be closely watched. "A higher-than-expected reading could revive hawkish Federal Reserve expectations, push yields higher and weigh on equity valuations, while a softer-than-expected print would offer relief that energy-led inflation is being contained," Swissquote Senior Analyst Ipek Ozkardeskaya writes.

--South Korea's Kospi fell 2.3% on Tuesday after closing at a fresh record high in the previous session. Japan's Nikkei Stock Average rose 0.5% and China's Shanghai Composite index dropped 0.25%.

--European indexes fell in opening trade as the impasse in the Middle East looks set to continue after President Trump said the cease-fire with Iran was on life support. The Europe-wide Stoxx 600 index was down 0.7% after closing higher in the previous session. All sectors are down with financials leading the falls--down 1.2%. Bayer shares are leading the index risers--up 6.3%--after reporting higher earnings. U.K. testing specialist Intertek's shares are also up after Swedish buyout group EQT sweetened its takeover bid. London's FTSE 100-index was down 0.45%, while Germany's DAX and France's CAC were down 0.7% and 0.5%, respectively.

--The dollar rose as a diplomatic stalemate between the U.S. and Iran keeps oil prices elevated and supports demand for safe-haven assets. President Trump on Monday said the cease-fire with Iran is "on life support" and he wouldn't drop demands for Iran to abandon its nuclear program. Top Iranian official Mohammad Bagher Ghalibaf warned the U.S. against escalation on Monday, saying Iran's armed forces are "ready to deliver a well-deserved response to any aggression." The DXY dollar index rose 0.2% to 98.162

--Sterling fell to a near two-week low against the euro as U.K. political uncertainty rises. Prime Minister Keir Starmer faces a crucial cabinet meeting Tuesday as he attempts to gain support from lawmakers in his Labour Party to avert a leadership challenge. Several dozen lawmakers have publicly demanded Starmer step aside following Labour's bruising defeat in local elections last week. The euro rose 0.2% to as high as 0.8673 pounds. Sterling fell 0.4% to $1.3553.

--U.S. Treasury yields edged higher in Asian trade as investors await U.S. consumer price inflation data for April later in the day. In the background, a no war, no peace stand between the U.S. and Iran continues, but investors increasingly focus on economic data. The two-year Treasury yield rose 1.5 bps to 3.961%, while the 10-year yield was up 1.1 bps to 4.421%, according to Tradeweb.

--Eurozone government bond yields face upward pressure from the inflationary impact of higher oil prices, but the 10-year German Bund yield might remain relatively anchored, ING rates strategists say in a note. "Markets nudged up the rate hike discount alongside oil prices to just over 70 basis points of tightening [by the European Central Bank] by year end," they say. The 10-year German Bund yield, meanwhile, rose a little further above the 3% mark "but shows continued reluctance to venture too far from that mark." The 10-year Bund yield closed at 3.042% on Monday, according to Tradeweb.

--Oil prices rose more than 2% as stalled talks between the U.S. and Iran worry markets, with President Trump saying the cease-fire is currently on "massive life support." In early European trading, Brent crude was up 2.1% to $106.36 a barrel, while WTI futures gained 2.5% to $100.51 a barrel. "Oil prices climbed for a second day as the global oil market continued to tighten amid limited prospects for a reopening of the Strait of Hormuz," analysts at Saxo Bank say. Meanwhile, attention is turning to the release of monthly outlooks from the Energy Information Administration later on Tuesday and the International Energy Agency and OPEC on Wednesday for more cues on supply-and-demand forecasts.

--Gold prices fell as a fragile cease-fire between the U.S. and Iran clouds the outlook. In early European trading, gold futures in New York were down 0.7% to $4,697.70 a troy ounce. "The market appears to be stuck between geopolitical anxiety and rising inflation worries," analysts at ANZ say. Meanwhile, physical demand might also be at risk, as India's prime minister called on citizens to avoid buying gold for a year to preserve foreign-exchange reserves. Traders now await the release of key U.S. inflation data, with CPI figures due later on Tuesday and PPI on Wednesday.

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(END) Dow Jones Newswires

05-12-26 0422ET