Oil prices rose more than 2% on Monday, with Brent crude surpassing $90 per barrel, following the latest escalation in the conflict between the U.S. and Iran.
In the stock markets, Wall Street and the major European exchanges traded lower, as investors continue to assess the more “aggressive” remarks on monetary policy made by U.S. Federal Reserve Board member Kevin Warsh.
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After trading lower for most of last week, oil prices rose again on Monday, one day after the U.S. announced that it had struck Iranian missile launchers on a small island in the Strait of Hormuz, marking the first U.S. attacks against Iran in a month.
The attack prompted a response from Tehran, which struck U.S. military targets in Jordan.
U.S. President Donald Trump stated on Monday that the United States would respond to Iranian attacks against American targets in the Middle East, according to Fox News.
The latest exchange of attacks occurred shortly after the six-month mark since the start of the U.S.-Iran conflict, though hostilities had subsided until they flared up again over the weekend.
These developments have reignited concerns about the conflict in the Persian Gulf, as efforts toward peace talks appear to be yielding no results and the Strait of Hormuz, through which, under normal circumstances, about one-fifth of the world’s oil and natural gas passes, remain largely closed.
“For oil traders, this move is yet another reminder of how quickly the geopolitical risk premium can return,” said Stephen Innes, an analyst at Quintex Intel.
He added that oil flows through the Strait of Hormuz had improved significantly from their lowest levels, a development that had caused prices to fall as the risk premium narrowed. However, the latest exchange of attacks demonstrates just how fragile this improvement remains and how quickly the issue of shipping could return to the forefront of the markets.
With inflation remaining stubbornly high, mainly due to rising energy costs, the U.S. Federal Reserve is under pressure to take action, while Kevin Warsh’s refusal to provide clear signals on the path of interest rates has heightened uncertainty in recent weeks.
In his highly anticipated speech on Friday at the symposium of central bankers and economists in Jackson Hole, Wyoming, Warsh left little doubt that he is ready to raise borrowing costs.
He described the rise in inflation—which currently stands at 3.7% and nearly double the U.S. Federal Reserve’s 2% target, while stating that he would find it difficult to characterize current financial conditions as “restrictive.” This statement was widely interpreted as a sign that interest rate hikes are imminent.
However, he avoided stating that he would support a hike, adding: “I stand here today committed to a discipline, not a decision.”
All three major Wall Street indices fell on Friday as investor expectations for a rate hike in September rose significantly.
The losses widened on Monday, with the Dow Jones index falling 0.5% at the opening bell in New York.
“There is a negative trend this morning in the stock futures market, which is linked to a negative news catalyst,” said Briefing.com analyst Patrick O’Hare.
“Specifically, the U.S. and Iran exchanged military strikes over the weekend,” he added, also noting that higher yields on U.S. Treasuries are weighing on stocks.
Asian stock markets struggled in the morning, but some recovered later, with some closing in positive territory and others slightly below Friday’s levels.
In Europe, Paris rose, while Frankfurt fell. London remained closed for a holiday.
The dollar weakened against major currencies after initially strengthening following Warsh’s remarks.
Attention is now turning to a series of key economic data points expected to be released over the next two weeks, ahead of the U.S. Federal Reserve’s decision. Employment data is expected this week, while the consumer price index will be released next week.
SEE ALSO: U.S.-Iran: Trump on high alert, “we will respond” to Iran’s attacks | AlphaNews
