Oil Near $100 Lifts Dollar, Pressures S&P 500

Oil hovering near $100 amid the Iran war has driven investors toward the US dollar while pressuring equities such as the S&P 500 and global stocks. Markets are rapidly repricing interest rates, with traders no longer expecting Federal Reserve cuts this year and instead pricing potential ECB hikes. Bond yields have surged, with euro-area Bund yields hitting a 2½-year high and US two-year Treasury yields reaching a six-month high. Stocks remain volatile as traders weigh stagflation risks from the energy shock.

Equities

The FTSE 100 closed 0.4% lower on Thursday as rising oil prices and escalating tensions in the Middle East unsettled investors. The FTSE 250 also ended the session down 0.9%. Crude prices climbed back toward $100 per barrel after attacks on fuel tankers in Iraqi waters and renewed threats from Iran’s new Supreme Leader, Mojtaba Khamenei, to keep the Strait of Hormuz closed. The sharp move in energy prices raised concerns about inflation and the potential impact on interest rates. The FTSE 350 energy index rose 2.6% and reached a record high as oil producers benefited from the surge in crude prices.

UK banking stocks came under pressure during Thursday’s trading. The UK banks index fell 4.8% as investors reassessed the outlook for the sector. HSBC shut all of its Qatar branches during the week as the conflict in the Middle East disrupted operations in the region. Standard Chartered also took precautionary steps, evacuating its Dubai office and instructing staff to work remotely. Meanwhile, inter-dealer broker TP ICAP closed 10.7% higher on Thursday after reporting a 3.6% rise in annual pre-tax profit, which lifted the shares to the top of the FTSE 250.

In the United States, Wall Street finished sharply lower on Thursday. The Dow Jones Industrial Average closed down 1.56% at 46,677.85, the S&P 500 fell 1.52% to 6,672.58 and the Nasdaq Composite ended 1.78% lower at 22,311.98. Oil prices surged after Iranian strikes on oil tankers pushed Brent and West Texas Intermediate crude sharply higher, raising concerns about the inflation outlook ahead of next week’s Federal Reserve meeting.

US financial stocks weakened amid growing worries about credit quality. Morgan Stanley shares dropped 4.1% after the bank limited redemptions at one of its private credit funds. JPMorgan Chase closed 1.6% lower after reducing the value of some loans linked to private credit funds.

Several companies posted strong gains. Dating-app operator Bumble closed 34.2% higher on Thursday after issuing fourth-quarter revenue guidance above analysts’ expectations. Chemical producers also rallied after receiving an upgrade from Citigroup. LyondellBasell ended the session up 10.3%, while Dow closed 9.3% higher on expectations of improved export opportunities linked to supply chain disruptions in the Middle East. Fertiliser producers also advanced, with the S&P fertiliser and agricultural chemicals index jumping 4.9%.

Forex & Commodities

The US dollar moved higher early on Friday as tensions linked to the war involving Iran continued to shape currency markets. The dollar index rose to around 99.83, its highest level since late November. The euro weakened to about $1.150 against the greenback, the lowest level since November, while sterling slipped to roughly $1.333 per dollar in early trading. The Japanese yen also weakened to around ¥159.7 per dollar, marking its lowest level in roughly twenty months and prompting renewed warnings from Japan’s finance minister that authorities remain ready to act if currency moves begin to harm the domestic economy.

Gold prices edged higher early on Friday with spot gold trading around $5,096 per ounce. Despite that modest rise, bullion remained lower for the week after the surge in energy prices complicated expectations for interest-rate reductions in the United States. Higher oil prices have increased concern that inflation pressures could persist, reducing the likelihood of near-term policy easing. Investors are also awaiting the delayed release of the US Personal Consumption Expenditures inflation index later today, a key measure closely watched by the Federal Reserve when assessing its interest-rate outlook.

Oil markets remained elevated as geopolitical tensions continued to threaten global supply. Brent crude traded around $101.5 per barrel on Friday morning, while US West Texas Intermediate crude was near $96.67 per barrel. Prices had surged late on Thursday after attacks on tankers in Gulf waters and Iranian threats to keep the Strait of Hormuz closed raised concerns over shipping disruptions. The United States attempted to stabilise supply by allowing a temporary waiver permitting the sale of Russian oil cargoes already stranded at sea, while the International Energy Agency also coordinated a large release of strategic petroleum reserves to ease market pressures.