Stocks rise as dollar nears six-week high on Iran uncertainty
Global markets moved higher on hopes for a possible U.S.-Iran deal, but investors are still pricing in the risk that talks could fail. The dollar stayed near a six-week high, oil prices rose again, and expectations for Federal Reserve policy shifted sharply because of the threat of another inflation wave.
Highlights
- The global MSCI index rose 0.22%, while Europe’s STOXX 600 gained 0.43%.
- S&P 500 and Dow futures rose about 0.3%, while Nasdaq 100 futures climbed 0.5%.
- Brent rose about 2% to $104.96 a barrel, while WTI climbed to $97.64.
- The dollar index held near 99.247, close to its highest level in more than six weeks.
Markets buy hope, not certainty
Stock markets moved higher Friday as investors waited for new signals from negotiations between Washington and Tehran. U.S. Secretary of State Marco Rubio said there were “some positive signs,” but key disagreements remain, including Iran’s uranium stockpile and control of the Strait of Hormuz. Reuters reported that uncertainty around these issues continues to keep markets highly sensitive.
The main global MSCI index rose 0.22%, while Europe’s STOXX 600 advanced 0.43%. U.S. futures also gained: contracts tied to the Dow and S&P 500 rose about 0.3%, while Nasdaq 100 futures, which are more exposed to technology stocks, climbed 0.5%. The previous day, the S&P 500 rose 0.17% to 7,445.72, staying close to its record of 7,517.12.
Dollar and oil show caution
Optimism in stocks did not erase demand for defensive assets. The dollar index held near 99.247, while the euro traded around $1.1614, close to a six-week low. The yen remained near 159.11 per dollar, again approaching the 160 level, where traders often begin to expect possible intervention from Japanese authorities.
Oil also showed that the market does not believe risks have disappeared. Brent rose about 2% to $104.96 a barrel, while WTI gained 1.35% to $97.64. Even if Brent is on track for a weekly decline of about 6%, the risk of disruptions in the Strait of Hormuz remains the main factor for energy markets and inflation expectations.
Rates become a problem for stocks again
The most important issue for investors is not only oil, but how it changes expectations for monetary policy. Before the crisis, markets expected the Fed to cut rates twice. Now they price the probability of a rate hike by year-end at more than 50%.
The yield on two-year U.S. Treasuries rose to 4.09%, above the upper end of the Fed’s current target range of 3.50%-3.75%. That is a signal that the bond market sees a chance of tighter policy. If the war drags on and energy prices remain high, stocks may continue rising only if corporate earnings can withstand higher rates and a stronger dollar.
In an earlier report, we noted that Iran war rattles the $50 trillion safe-haven debt market.
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