STOCKS advanced modestly yesterday while the dollar was lower as investors waited hopefully for US/Iran talks scheduled for the weekend after US inflation data surged in line with expectations on soaring energy prices.
Investor hopes for a break in Middle East hostilities had been boosted when Israel said on Thursday that it was seeking talks with Lebanon. Iran has cited Israel’s continuing attacks on Lebanon as a key sticking point in its ceasefire agreement with the United States, which requires Iran to reopen the Strait of Hormuz, through which roughly a fifth of global energy supplies are shipped. Tehran and Washington delegations are due to meet in Pakistan today.
Meanwhile the latest inflation report showed that US consumer prices increased by the most in nearly four years in March as the war boosted oil prices and the pass-through from tariffs persisted, further diminishing chances for Federal Reserve interest rate cut this year.
“The market was braced for a hot print, so today’s in line number is a slight relief. However, it may be the best headline inflation number we see for a while as it may only partially capture the full force of the Iran conflict,” said Alexandra Wilson-Elizondo, global co-CIO of multi-asset solutions at Goldman Sachs Asset Management, while she noted that the US economy has become less oil intensive since the 1970s.
And with wage growth decelerating to levels consistent with the inflation target, and long-term inflation expectations staying anchored, Wilson-Elizondo sees the Fed looking through “energy-driven noise so long as these factors hold” and staying patient.
On Wall Street at 11am, the Dow Jones Industrial Average was down 144.77 points, or 0.30 per cent, at 48,041.03, the S&P 500 rose 12.98 points, or 0.19pc, to 6,837.35 and the Nasdaq Composite rose 157.74 points, or 0.69pc, to 22,980.48.
MSCI’s gauge of stocks across the globe rose 4.22 points, or 0.41pc, to 1,036.85. The pan-European STOXX 600 index rose 0.46pc.
Underscoring growing relief, the CBOE volatility index extended losses after closing below pre-war levels for the first time on Thursday. It was last down 1.5 points at 19.19. Earlier MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.9pc to put it up 7.3pc for the week, its biggest advance since November 2022.
In a sign that the Middle East conflict is putting cost pressure on the world’s second-largest economy, China’s factory-gate prices rose for the first time in 3-1/2 years in March, official data showed earlier.
With the Strait of Hormuz still largely closed to shipping and on concerns persisting over supplies from Saudi Arabia, oil futures were up modestly. Ship-tracking data showed yesterday that the majority of ships that have sailed through the Strait in the past day were linked to Iran.
US crude rose 0.6pc to $98.54 a barrel and Brent fell to $95.86 per barrel, down 0.08pc on the day.
In currencies, the dollar slipped yesterday, putting it on track for its largest weekly drop since January, as investors sold safe-haven assets on the assumption that oil shipping will resume if a ceasefire holds in the Gulf.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.22pc to 98.65, with the euro up 0.24pc at $1.1727.
Against the Japanese yen, the dollar strengthened 0.11pc to 159.11. In US Treasuries, yields edged slightly higher after the US inflation reading and ahead of the peace talks.
The yield on benchmark US 10-year notes rose 1.2 basis points to 4.305pc, from 4.293pc late on Thursday while the 30-year bond yield rose 1.2 basis points to 4.9101pc.
The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 0.6 basis points to 3.789pc, from 3.783pc late on Thursday.
In precious metals, spot gold rose 0.24pc to $4,775.16 an ounce while spot silver rose 1.6pc to $76.27 an ounce.
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