GLOBAL stocks rallied yesterday after three straight sessions of declines as oil prices retreated, though the recent surge in crude prices is likely to alter the inflation outlook and cause most central banks to hold at their policy meetings this week.
Israel said it has detailed plans for at least three more weeks of war as its military pounded sites across Iran overnight, while Iranian drone attacks temporarily shut Dubai airport and hit a key oil facility in the UAE.
US President Donald Trump on Sunday called for a coalition of nations to help reopen the vital Strait of Hormuz, warning that the Nato alliance faces a “very bad” future if its members fail to come to Washington’s aid.
Crude extended declines after Treasury Secretary Scott Bessent said that the US was “fine” with some Iranian, Indian and Chinese ships going through the strait for now, adding that any action to alleviate higher prices would depend on how long the war on Iran lasts.
US crude fell 5.19 per cent to $93.60 a barrel and Brent fell to $100.56 per barrel, down 2.5pc on the day. Both Brent and US crude have surged nearly 40pc in March.
This jump in oil prices and its potential to boost inflation has led markets to recalibrate expectations for easing policies from global central banks this year. Markets are currently pricing in about 25 basis points of cuts from the US Federal Reserve by the end of the year, and nearly 40 basis points of hikes from the European Central Bank, according to LSEG data.
On Wall Street, US stocks were higher in the early stages of trading, led by AI-linked names such as Nvidia and Meta Platforms.
“If we had a very extended conflict (in the Middle East), there are certain aspects to the AI capex story that could be impeded if there wasn’t enough energy, and if there wasn’t enough delivery of the chips and everything that was needed,” said Steve Edwards, senior investment strategist at Morgan Stanley Wealth Management.
The Dow Jones Industrial Average rose 534.46 points, or 1.15pc, to 47,092.93, the S&P 500 was up 85.07 points, or 1.28pc, to 6,717.14, and the Nasdaq Composite gained 330.43 points, or 1.49pc, to 22,435.60.
MSCI’s gauge of stocks across the globe rose 11.81 points, or 1.18pc, to 1,011.02, and was on pace for its biggest daily percentage gain since February 6. The pan-European STOXX 600 index rose 0.79pc and was on track to snap a three-session streak of declines.
Commerzbank’s shares shot up about 9pc after Italy’s UniCredit launched a bid for an additional stake in the German lender.
Central banks in the US, Britain, euro zone, Japan, Australia, Canada, Switzerland and Sweden will this week all hold their first meetings since the start of the war, and investors will look for clues on how rising crude prices could impact the interest-rate path.
The sharp shifts in central bank expectations have led to large moves in government bonds.
The yield on the benchmark US 10-year notes fell 5.9 basis points to 4.226pc, though is still up about 27 bps for March, as market participants dialled back the timing and magnitude for expected rate cuts.
The US Fed is largely expected to hold rates steady at its policy announcement tomorrow, and policymakers are more likely to strike a cautious if not outright hawkish tone this week due to the current oil shock.
Rate-sensitive, shorter-dated yields have seen sharper moves, and two-year German yields have risen 38 basis points, while the equivalent British gilt yield has surged 55 bps.
A cautiously steady outcome is expected from the other central bank meetings, excluding the Reserve Bank of Australia, which is seen as likely to raise its cash rate a quarter point to 4.1pc, as it battles resurgent inflation at home.
The heightened volatility in markets has tended to benefit the US dollar as a safe haven. The United States is also a net energy exporter, giving it a relative advantage over Europe and much of Asia, which are net importers.
But the dollar index, which measures the greenback against a basket of currencies, fell 0.48pc to 99.86, after touching a 10-month high on Friday, with the euro up 0.68pc at $1.1494.
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