Stocks Drop And Oil Rises As Hormuz Hopes Fade

Asian stocks mostly fell and oil prices extended gains on Tuesday as hopes for a reopening of the Strait of Hormuz fade amid expectations the Federal Reserve will hike interest rates again next month.

Hopes for an easing of Middle East tensions were dashed at the weekend when Donald Trump rejected Iran’s offer for a seven-day truce.

Trump said talks would resume this week but that was unable to lift the gloom on market floors, with traders contemplating further rises in inflation that will force the Fed to tighten monetary policy more.

The US president on Monday denied a report by the news outlet Axios that he offered Iran sanctions relief and the release of frozen funds, as the Middle East war drags on.

“Axios just released a story that ‘Trump’ offered Sanctions Relief and Frozen Funds to Iran. This is untrue. I offered them NOTHING!,” Trump said on his Truth Social platform.

The story, quoting unidentified US officials, said Trump “is willing to give Iran sanctions relief and release Iranian frozen funds in return for concrete Iranian steps regarding the nuclear program”.

The 80-year-old Republican called the story “a HOAX” and said the news site should withdraw it.

However, Iran’s state broadcaster said the country’s foreign minister, Abbas Araghchi, will meet Qatari representatives.

The talks are expected to focus on “messages exchanged with the United States through intermediaries… particularly regarding the conditions set by Iran for the reopening of the Strait of Hormuz”.

Tehran officials have privately expressed pessimism about making a deal to reopen Hormuz before November’s US midterm elections, Bloomberg reported sources as saying.

The waterway is key to the world’s oil and gas deliveries and is now central to the US-Iran conflict, particularly with the Iran-backed Houthis seizing Yemen’s entire Red Sea coast, including the Bab al-Mandab Strait, another vital shipping lane.

“Our expectations remain that the conflict will be with markets for the foreseeable future and the global economy will continue adjusting to the realities of the supply disruptions,” said Ian Lyngen at BMO Capital Markets.

Diesel record

Both main crude contracts rose more than one percent on Tuesday, and the lack of any progress in ending the conflict continues to put upward pressure on fuel costs.

Average UK diesel prices have hit a record high, according to the RAC motoring organisation.

Equity markets struggled following a day in the red for all three main indexes on Wall Street.

Tokyo, Seoul, Hong Kong, Mumbai, Singapore, Taipei, Wellington, Jakarta and Manila were all down, but Shanghai and Sydney rose.

London, Paris and Frankfurt also rose.

Gold held Monday’s steep losses to sit around $4,140 as traders bet on more rate hikes, which makes the non-interest-bearing metal less attractive.

Investors are also gearing up for the release of key US inflation and jobs data this week that could play a role in the Fed’s decision-making, with markets pricing in a second successive rate hike at the end of October.

“The main concern for markets isn’t that employment conditions could suddenly weaken. It’s almost the opposite,” wrote Fiona Cincotta at FOREX.com.

“Economic data has remained surprisingly strong despite higher rates and energy prices,” she added.

“Typically, stronger non-farm payrolls (jobs) are positive for stocks, but that is not necessarily the case when inflation is also rising sharply.

“Strong employment could instead strengthen the case for the Fed to keep rates higher for longer, or even hike rates again to bring inflation under control.”

In company news, fast-fashion giant Shein fell almost 14 percent at one point in Hong Kong after releasing disappointing earnings.

It was the firm’s first report since listing at the start of the month following a high-profile $1.7 billion initial public offering.

Key figures at around 0810 GMT

Tokyo – Nikkei 225: DOWN 0.6 percent at 65,481.27 (close)

Hong Kong – Hang Seng Index: DOWN 0.5 percent at 24,523.57 (close)

Shanghai – Composite: UP 0.2 percent at 3,830.45 (close)

London – FTSE 100: UP 0.3 percent at 10,720.01

West Texas Intermediate: UP 0.7 percent at $93.33 per barrel

Brent North Sea Crude: UP 0.8 percent at $106.16 per barrel

Dollar/yen: DOWN at 157.36 yen from 157.42 yen on Monday

Euro/dollar: DOWN at $1.1350 from $1.1367

Pound/dollar: DOWN at $1.3233 from $1.3252

Euro/pound: DOWN at 85.77 pence from 85.78 pence

New York – Dow: DOWN 0.7 percent at 51,481.51 (close)

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