LONDON (Aug 11): Oil prices neared US$90 a barrel on Tuesday as negotiations between the US and Iran over a peace deal and the reopening of the Strait of Hormuz hit an impasse, while uncertainty over the global inflation outlook tempered a rise in stocks.
US President Donald Trump responded with his own demands on Monday to Tehran's conditions for a peace deal, calling for Iran to pay compensation for those killed in wars, attacks and protests, potentially complicating efforts to reopen the crucial waterway.
Brent crude futures have risen 5% in the last two days alone and were last around US$88 a barrel, their highest since July 31 and nearly 25% above early July's near-four-month lows.
"We're now in a bit of a Mexican standoff, if you'd like, in terms of who blinks first," said Tony Sycamore, a market analyst at IG.
"This is going to be almost a war of attrition now," he said. "You probably can see the (oil) market sitting around the US$75 to US$95 range while we wait to see who blinks first."
While Wednesday's US July consumer price report will not capture the most recent rise in energy costs, it could still prove instrumental in setting expectations for September's Federal Reserve meeting, for which money markets show there is a 50/50 chance of a hike.
"We think the risks are skewed towards a hot print, which would probably drive a rebound in rate expectations and, potentially, renewed worries about stagflation," said Jonas Goltermann, chief markets economist at Capital Economics.
US Treasuries steadied, leaving two-year Treasury yields down one basis point at 4.23%, while 10-year yields were flat at 4.7%. More worryingly for investor risk appetite was a renewed push higher in 30-year bond yields towards July's 19-year highs above 5.28%.
"After last week when it felt like the doves were in the ascendant again, the latest news has pushed things in a more hawkish direction, with yields and commodity prices both moving higher," Deutsche Bank strategist Jim Reid said.
Europe's STOXX 600 pared earlier losses to inch up 0.1% on the day, while MSCI's All-World index was unchanged. Nasdaq futures, meanwhile, rose 0.4%, while those on the S&P 500 rose 0.2%. The benchmark indices fell on Monday.
Overnight, Nvidia said it had teamed up with six major financial institutions including BlackRock, Apollo and Goldman Sachs to create a set of funding measures worth more than US$500 billion (RM2.05 trillion) for AI infrastructure.
It did not disclose much more in the way of detail, such as financial terms, investment commitments or how the planned US$500 billion might fit into existing funding deals.
"A small part of me was left wondering whether this is how it felt when sub-prime mortgages first became a mainstream product — the innovation that eventually helped trigger the GFC," Sycamore added.
Highlighting some of the investor concern was another sell-off in Nvidia's bonds. Its 2% bond maturing in 2031 was last yielding 4.86% on the Tradegate platform, up four bps from Monday.
Meanwhile, Intel raised US$20 billion through a share sale, the first offering of its stock since the chipmaker listed in 1971. Intel shares fell around 1% in premarket trading.
Among currencies, the yen was back in the spotlight, as it weakened beyond 159 again and was off last week's high of 155.20 after several suspected rounds of intervention, including a joint move by Japan and the US.
A holiday in Japan made for thinner trading than usual — often seen as a possible catalyst for intervention, as smaller trades can have a far greater price impact than in normal conditions.
Elsewhere, gold, which has risen by 8% so far this month, was 0.1% higher on the day at US$4,394 an ounce.
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