Global oil prices and natural gas prices moved up sharply on Monday morning, while the stock market appeared to take the attack on Iran by the U.S. and Israel and Iran’s retaliation against its Persian Gulf neighbors in stride.
Futures for Brent crude oil, the global benchmark for oil prices, rose by more than eight percent, propelled by worries about supply constraints stemming from military clashes around the Persian Gulf. Traders are looking for signs of damage to energy infrastructure in the Mideast and whether tanker ships will be able to continue to pass through the Strait of Hormuz, the narrow seaway through which much Mideast oil must pass to reach the rest of the world.
U.S. oil prices jumped by seven percent. U.S. natural gas prices climbed 3.6 percent while prices in Europe and Asia soared on fears of a prolonged supply disruption.
Stocks were volatile. Equity futures were down sharply over the weekend and the major indexes initially fell sharply Monday morning, only to pare back the losses in the first hour of trading. Two hours after cash markets opened in the U.S., the Dow Jones Industrial Average was down by 0.28 percent, the S&P 500 declined by 0.23 percent, and the Nasdaq composite was flat to positive.
In the U.S., three of the 11 sectors of the S&P 500 were up: energy stocks, industrials, and technology. The consumer discretionary, consumer staples, materials, and communications were all down by more than one percent.
Stock markets across Europe largely sold off, with declines in France, the U.K., and Germany. In Japan, the Nikkei fell 1.35 percent. Hong Kong’s Hang Seng Index fell by just over 2.1 percent. The Shanghai stock index rose 0.5 percent. Australian stocks bounced between positive and flat for the day.
Gold futures rallied around two percent. The U.S. dollar strengthened against the British pound, the Euro, and the Japanese yen.
U.S. Treasury yields inched back above 4 percent, on fears that higher energy prices could make the Federal Reserve more cautious about inflation. The federal funds futures market indicated less conviction that the Fed will cut interest rates in the first half of this year, while still indicating that investors expect two cuts by the end of year.
In a great example of unexpected consequences, Reuters reporters that “world sugar prices rallied around two percent on Monday on fears the conflict and resulting disruption to energy supplies will prompt Brazilian cane mills to produce more ethanol and less sugar.”
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