Shares steady, oil turbulence deepens as Middle East war roils markets
Oil prices briefly retreated after The Wall Street Journal reported that the International Energy Agency had proposed the largest release of oil reserves in its history in an effort to lower crude prices
Shares steadied today (11 March) after a brief dip in oil prices though markets remained anxious as conflicting signals from the US-Israeli war on Iran left investors struggling to assess its potential impact on global inflation and economic growth.
Oil prices briefly retreated after The Wall Street Journal reported that the International Energy Agency had proposed the largest release of oil reserves in its history in an effort to lower crude prices.
The move offered some relief to battered global equities while currencies and bonds showed little movement.
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Brent crude futures fluctuated between gains and losses and were last trading 0.2% higher at $87.89 per barrel.
US crude was largely unchanged at $83.47 a barrel after initially falling on the report.
The conflict in the Middle East continued to unsettle investors as the United States and Israel intensified strikes on Iran in what some described as the most intense air attacks of the war undermining earlier hopes of an imminent end to hostilities.
"This news on the strategic reserves being released is welcomed by the market, because then, in the case of a short conflict, there is enough oil to avoid any rationing or economic impact," said Frank Benzimra, head of Asia equity strategy and multi-asset strategist at Societe Generale.
"But it's going to remain uncertain... it's very, very unpredictable."
Despite the uncertainty global stocks recovered somewhat. MSCI Asia-Pacific ex-Japan Index rose 1.6% while Japan's Nikkei 225 gained 2.1%. South Korea's KOSPI advanced 3.2%.
US stock futures also edged higher after a mixed session overnight with Nasdaq Composite futures and S&P 500 futures each adding 0.4%.
Meanwhile EURO STOXX 50 futures slipped 0.3%.
Markets remain on edge as the Middle East conflict threatens to disrupt global energy trade and trigger a price shock prompting world leaders to search for ways to mitigate the risk.
Still the direction of energy markets largely depends on the duration and intensity of the conflict.
"Several major questions loom over the oil market's trajectory.
Chief among them is the timing of safe passage for vessels through the Strait of Hormuz, a critical chokepoint for global oil supply," said Kerstin Hottner, head of commodities at Vontobel.
"Another concern is the possibility of infrastructure damage... Even if major hostilities subside, the prospect of ongoing low-level Iranian drone attacks on energy infrastructure could prolong market instability into next year."
Dollar strengthens as investors seek safety
The US dollar held on to its gains on Wednesday as investors evaluated the war's broader impact with the greenback emerging as the preferred safe-haven asset during the turmoil.
Against the yen the dollar rose 0.1% to 158.25 while the euro and sterling weakened trading at $1.1624 and $1.3440 respectively.
"You have only one safe asset, which has been the US dollar," said SocGen's Benzimra.
"Even gold or Treasuries did not play this huge safe haven role. In the case of Treasuries, because of the inflation concerns, and in the case of gold, because we could see some investors selling their gains in gold to offset some losses in the equity market."
Bond markets have faced pressure in recent sessions amid concerns that a prolonged rise in energy prices could fuel inflation and push central banks worldwide toward a more hawkish stance.
US Treasuries stabilised on Wednesday with the yield on the benchmark 10-year note little changed at 4.1460% while the two-year yield stood at 3.5796%.
"The general tone of central banks will remain hawkish so long as the threat of the war's inflationary implications persist," said Thierry Wizman, global FX and rates strategist at Macquarie Group.
"We would expect that this more hawkish disposition persists even after hostilities end, largely because the data may continue to point to inflationary pressures throughout the period in which inflation may show up in the data."
February's US inflation reading is due later today.
In precious metals spot gold rose 0.5% to $5,215.60 an ounce.
