Oil climbs above $91 as Iran tensions escalate

Summary

Brent crude rose for a third session to around $91 a barrel after Iran threatened a fully offensive military posture as negotiations with the US stalled. S&P 500 futures moved modestly lower, while FTSE 100 futures were flat as rising government bond yields weighed on equities. The 30-year US Treasury yield reached its highest level since 2007, while Japanese bond yields climbed to a three-decade high.

Equities

The FTSE 100 fell 0.3% on Monday to close at 10,720.30, its sixth consecutive decline and lowest finish in more than three weeks. The FTSE 250 dropped 0.7% to 24,704.40, recording its largest percentage decline in more than three weeks.

AstraZeneca rose 0.9% on Monday after the pharmaceutical group said its Tagrisso-Orpathys combination and Daiichi Sankyo-partnered Enhertu had met key goals. Mining shares also advanced, with Anglo American gaining 2%, Fresnillo climbing 1.6%, Rio Tinto rising 1% and Glencore adding 0.9% as copper reached a more than six-month high.

Rolls-Royce climbed 1.5% on Monday after Morgan Stanley and Citigroup raised their price targets on the engineering group. Consumer-related shares were weaker, with the FTSE 350 personal goods, beverages, and personal care, drug and grocery store indices falling between 1.9% and 2.7%.

In the US, the S&P 500 fell 0.52% on Monday to close at 7,745.06, while the Dow Jones Industrial Average declined 0.51% to 53,459.78. The Nasdaq Composite lost 0.31% to finish at 26,644.91, with communications services and consumer staples both falling around 1.5%.

Technology shares moved sharply in both directions during Monday’s session. Microsoft and Meta Platforms each fell more than 3%, while Applied Materials climbed 5.5% and Micron Technology gained 4%. The PHLX semiconductor index rose 1.6%, contrasting with a 2.8% decline for the S&P 500 Software & Services index.

US-listed shares of Vista Energy jumped 5.6% on Monday after Peter Thiel bought a 1% stake in the Latin American oil producer. Investors were also awaiting quarterly results from Home Depot on Tuesday and Walmart on Thursday, while Nvidia is due to publish its results next week.

Forex & Commodities

The US dollar remained close to multi-month lows against major currencies early on Tuesday, although the dollar index edged higher to 99.66. Sterling traded at $1.353, just below the three-month high reached on Monday, while the euro eased to $1.157 after touching a two-month high of $1.161 in the previous session.

The Japanese yen weakened early this morning to 159.7 per dollar, giving back almost half of the gains made following joint US-Japanese intervention at the end of July. The Australian dollar held around $0.7100, close to its strongest level since early June, while the New Zealand dollar slipped to $0.5880.

Expectations for a Federal Reserve interest rate increase have fallen following July’s unexpected US job losses and softer inflation and retail sales figures. Early on Tuesday, markets put the probability of a September rate increase at around 35%, down from 52.2% a week earlier, while most economists expect rates to remain unchanged through the end of the year.

Attention now turns to the minutes from the Federal Reserve’s July policy meeting, due on Wednesday. In Japan, the Bank of Japan is expected to raise interest rates at its September meeting and is considering a faster pace of subsequent increases.

Spot gold fell early this morning to $4,391 an ounce. Silver declined to $65.11 an ounce, while platinum fell to $1,749 and palladium dropped to $1,317.

Oil prices climbed early on Tuesday as efforts to secure a permanent end to the US-Iran conflict stalled and Washington ruled out extending the temporary ceasefire. Brent crude rose to $91.49 a barrel after reaching its highest level since July 30 on Monday, while US West Texas Intermediate increased to $85.25 after briefly reaching $85.37, its highest since July 31.