Oil prices jump on Iran war, global stock markets diverge

World oil prices jumped on Wednesday, with the benchmark international contract Brent North Sea crude surpassing $95 for the first time in nearly six weeks as the United States and Iran carried out more strikes.

Crude futures went on to give up some of the gains but still rose around three per cent.

“Festering concerns that the US-Iran standoff is at risk of heating up further, as opposed to cooling off appreciably soon, are behind the spike in oil prices,” said Briefing.com analyst Patrick O’Hare.

Oil futures have risen strongly in recent weeks, after falling back to pre-war levels on hopes that a deal to end the conflict would hold.

The escalation in violence has made a return to $100 crude a realistic prospect should tensions not ease, especially if Saudi Arabia’s Red Sea exports are choked off.

While stock market traders kept a close watch on the Mideast war developments, focus was also firmly on the technology sector, as it has been for several weeks.

“A rotation away from tech has resulted in a better day for European markets overall, which continue to defy the strength in oil,” said Chris Beauchamp, Chief Market Analyst at online trading and investing platform IG.

Tech stocks rebounded on Wall Street on Tuesday, but were having a more difficult day on Wednesday, with the tech-heavy Nasdaq Composite a touch lower in late morning trading in New York.

Stocks in firms that make chips, which have been volatile amid investor angst over whether massive AI investments will be profitable, were trading higher overall.

But companies that are massively deploying AI, such as Amazon, Apple, Meta and Microsoft, were trading sharply lower.

The recent “pullback in chip stocks following a storming run earlier this year has left investors hungry for an update on AI-related demand and to see if all the big investments into tech infrastructure are paying off”, said Russ Mould, investment director at AJ Bell.

Google parent “Alphabet reports tonight, with Intel following tomorrow and Microsoft, Meta... and others next week”, he added.

Alphabet’s shares were up 0.7 percent.

Asia’s main stock markets closed mixed on Wednesday, as investors eagerly awaited earnings updates from technology giants.

Gold rose to its highest level in two weeks on ​Wednesday, buoyed by a softer dollar and technical buying, as markets weighed ‌signs of lingering tensions in ‌the Middle East and awaited fresh cues on US interest rates from the Federal Reserve.

Spot gold gained 1.3% to $4,130.59 per ounce by 08:32am, having hit its ‌highest level since July 7 at $4,141.59 per ounce earlier in the day. US gold futures for August delivery rose 1.5% to $4,135.40.

“Gold exploded higher, punching above $4,140 as a weaker dollar and dip buyers injected fresh inspiration into bulls,” said Lukman Otunuga, senior research analyst at FXTM.

The dollar dipped from a one-week high on Wednesday after four straight daily advances, while the yen recovered slightly from its weakest level in nearly four decades as traders gauged the likelihood ‌of intervention from Tokyo and the chances of faster rate hikes by the Bank of Japan.

The dollar has been rising in recent days as increased tensions ​in the U.S.-Iran war have caused a reversal in oil prices and again fanned inflation fears.

The dollar index, which measures the greenback against a basket of currencies, fell 0.08% to 101.10, with the euro up 0.12% at $1.1411.

Crude prices had been coming down since May on optimism a durable peace deal could be reached and, along with cool US inflation readings, dented market expectations for rate hikes from the Federal Reserve. Expectations for a hike from the Fed at its July meeting have been edging back ​up along with oil prices, with markets now pricing in a 26.2% chance for an increase, according to CME FedWatch, up from 10.7% ‌a week ago.

The Japanese yen strengthened 0.07% against the greenback to 163.04 per dollar. The currency weakened to 163.23 on Tuesday, its lowest since December 1986 as investors adjust to a changing policy backdrop under Japanese Prime Minister Sanae Takaichi, whose administration has struggled to shake off views that it may pressure the Bank of Japan (BOJ) to delay further rate hikes. Markets are currently pricing in about 27 basis points of hikes from the central bank this year, according to LSEG data. Reuters reported that the BOJ remains on alert to upside inflation risks that could lead to faster interest rate hikes than markets project, according to three sources familiar with its thinking. Japan’s Finance Minister Satsuki Katayama ​has said authorities would ‌take decisive action if needed to curb excessive currency weakness. Tokyo had intervened in April and May, when the yen weakened beyond the 160-per-dollar level.

Those efforts, ‌however, have done little to stem the tide of the yen’s broader trajectory, which analysts say is being driven in part by broad-based dollar strength and the BOJ’s still-low interest rates.

Sterling strengthened 0.05% to $1.3375, putting it on track to snap a four-session streak of declines. British inflation cooled by more than expected last month as a brief de-escalation in the Iran war lowered fuel prices, but the slowdown ​is likely to offer only temporary relief to new Prime Minister Andy Burnham as he seeks to ease living costs. Burnham said he was making no unfunded promise to change the tax-free personal allowance and that decisions on taxation would be taken at the next fiscal update expected in several months.

Agencies