By Tom Westbrook
SINGAPORE, July 8 (Reuters) – Oil prices rose and bonds were sold on Wednesday as renewed fighting in the Middle East and U.S. sanctions on Iranian oil threatened the ceasefire, while stocks looked shaky as the record-breaking AI rally starts to run short on buyers.
Brent crude futures were up 3.2% to $76.54 a barrel, which is a long way below war peaks of above $120 but enough to wobble the bond market by raising inflation risks, particularly since months of conflict have drawn down global inventories.
“Obviously the market doesn’t like these attacks … but it’s not full-blown panic mode,” said Jason Wong, senior strategist at BNZ in Wellington.
U.S. and European stock futures were broadly steady.
The U.S. said it hit Iranian air defences, coastal surveillance and drone launch sites, and Iran’s Revolutionary Guards said they targeted the U.S. military in Bahrain and Kuwait, where air raid sirens sounded on Wednesday.
Washington also moved to withdraw a concession allowing Iran to sell oil on the global market, which Iran’s foreign ministry said breached the framework deal to end the war.
Ten-year U.S. Treasury yields, which rise when prices fall, climbed about 3 basis points to a one-month high of 4.565% and 30-year yields have broken above 5%.
“Just when we thought we could put the geopolitical risk premia to bed … we were certainly reminded that this peace deal is very much still a process,” said David Chao, Asia-Pacific global market strategist at Invesco in Singapore.
“I think where Brent (is) currently, it’s still trading at levels that I think are not factoring in some of the continued flare-ups from the Middle East.”
Data this week showed stocks of crude in the U.S. Strategic Petroleum Reserve hit their lowest level since 1983, leaving markets more vulnerable to future supply shocks.
SAMSUNG SINKS
Asian markets were volatile and swung to losses with investors rattled by the sight of Samsung Electronics shares sliding for a second straight session despite the company flagging a staggering 19-fold rise in profit.
A 5% drop in Seoul has carried South Korean stocks down more than 20% from last month’s peak, which if sustained through to the closing bell would confirm, on some definitions, a bear market – even though the KOSPI index is up 70% this year.
“Short-term profit taking on long-term winners, particularly the AI theme, appears to be a global dynamic,” said Sara Perring, head of APAC cash equity sales at J.P. Morgan.
“According to J.P. Morgan Research, we should expect elevated volatility and continued foreign selling in Korea equities in the near term.”
Overnight the Nasdaq fell through its 50-day moving average.
Japan’s Nikkei fell 1.2% on Wednesday, though Hong Kong was a bright spot and especially the battered tech index which rose 3.8% to head for one of its best sessions of the year as investors scooped up laggards.
In currency markets the dollar, which had come off recent highs, was firm and pushed the euro back to just above $1.14 and climbed past 162 yen, raising the risk of a pushback from Japanese authorities. [FRX/]
The New Zealand dollar blipped about 0.5% higher to $0.57 after the Reserve Bank of New Zealand raised interest rates, as traders had largely expected.
Minutes from last month’s Federal Reserve meeting are due later on Wednesday and traders think new chair Kevin Warsh might pare back the detail to dampen any policy signal.
“Avoiding any discussion of rate hikes may come to be seen by the market as a reluctance to move,” said Standard Chartered head of North America macro strategy Steve Englander.
(Reporting by Tom Westbrook; Editing by Jamie Freed and Sonali Paul)
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