LONDON/NEW YORK, July 8 (Reuters) – Oil fell and stocks and bonds fell on Wednesday, after U.S. President Donald Trump said the joint deal that provided a framework for ending hostilities with Iran was “finished” after the two sides traded overnight.
Trump spoke in Ankara at the NATO summit in the Turkish capital. Oil prices rose 5% to $78 a barrel and European shares fell 1.1%, while the dollar jumped and government bond yields rose. US stocks were slightly lower, with the Nasdaq down 0.6%.
COMMENTS:
BRUCE ZARO, MANAGING DIRECTOR, GRAMITE WEALTH MANAGEMENT, PLYMOUTH, MASSACHUSETTS:
“What I’m interested in is oil price action. Oil prices have been very low… As OPEC comes in and adds more oil to the market, oil capacity is reduced and that takes a lot of concern off the table… When I hear that the ceasefire is off, I think it’s a much more muted reaction than what the market probably would have said four weeks ago, six weeks ago.”
ANGELO KOURKAFAS, GREAT WORLD ARTIST, INVESTMENT STRATEGY, EDWARD JONES, ST. LOUIS, MISSOURI:
“Rising oil prices and higher bond yields helped offset the correction of around 10% in the first half of the year, but also underscored the resilience of the economy to this shock. The renewed risks of the country may drive some near-term sentiment, but we do not expect investors to react to this round of uncertainty, for several reasons in common.
“First, the US or Iran seem to be prone to a long-term conflict, in our opinion, and investors have realized that reacting to fast-moving topics can lead to inappropriate portfolio results. Second, we think that it may take a larger and continuous increase in oil prices to change the economic situation and the company’s income. Finally, the supply of oil has been improved, the supply of oil has been improved, the supply of oil has been improved. The labor market it helps support household incomes—even if the top tax refund is reduced.”
IAN LYNGEN, HEAD OF ASSURANCE, BMO CAPITAL MARKETS, NEW YORK:
“In practical terms, a possible reset in the Iran war means that the near-term economic data is less important – at least on the margins. June’s inflation figures will be lowered in the event that crude oil continues to march higher throughout the month of July. The downward impact on inflation in the topic (and possible overshoot) appears to be increasing.
“If we put this in the context of this afternoon’s FOMC Minutes, the official update will now appear outdated because the Middle East conflict no longer appears to be resolved, or at least on the way to a near-term resolution.
“However, investors will be eager for any insight into the extent to which the Fed’s response to the performance of the real economy has changed under Warsh’s leadership, if at all.”
HAMAD HUSSAIN, CLIMATE AND NEWS ECONOMICS, CAPITAL ECONOMICS, READING, UK:
“The recent exchange of military strikes in the Middle East supports our view that oil prices will be volatile in the coming months, and will face upward pressure. That said, under the assumption that some form of ceasefire finally takes hold and oil flows continue to stabilize, we think Brent crude prices will remain close to current levels by the end of this year.”
FIONA CINCOTTA, SENIOR MARKET ANALYST, CITY INDEX, LONDON:
“This was always going to be a very fragile peace process. The fact that oil prices had fallen back to pre-war levels suggested that the market was a bit ahead of itself.”
“Oil prices could continue to rise if we see the Strait of Hormuz close again and the easing of all the positives we’ve seen in the last few weeks.”
ANEEKA GUPTA, DIRECTOR, MACROECONOMIC RESEARCH, WISDOMTREE, LONDON:
“It is a big day that wakes up the markets because it is expected that following the MOU, we may start to see the flow of oil back into the markets. And we saw the expected inflation.
“The way we look at it now is that the (Iranian) oil is gone. It has removed an important incentive for Iran to follow the law.”
“Trump’s comments add another layer of risk premium to the markets. But the truth is Trump, you always have a TACO (‘Trump always chickens out’) trade.”
“He was approaching the midterm elections. The fact that he wanted to do this deal with Iran meant that he wanted to improve his ratings before the winter elections, and that will be an important factor for him to remember.”
ARNE PETIMEZAS, RESEARCH DIRECTOR, AFS GROUP, AMSTERDAM:
“Remember where we left off with oil prices and bond yields. The levels are very high. The market has not yet reached levels that would scare Trump.”
“And do we take Trump seriously? He says the peace deal is over, but US negotiators can continue to do their job. We also know that Trump can turn on a dime. He may have an about-face today, tomorrow, next week, or maybe later. I don’t see him fighting Iran in the election.”
CHRIS BEAUCHAMP, CHIEF MARKET MUNICIPALITY, IG, LONDON:
“Obviously it’s not what the market wants and it’s very emotional.”
“I think how this is going to play out is that there will be a few more exchanges, and maybe they will go back to the talks because both sides want it. So the MOU may be over, but as it proved before, they didn’t use the MOU to have a ceasefire that allows the markets to converge.”
“Things that have come a long way in such a short period of time, you’re going to be looking and thinking there’s going to be a summer slump that’s going to weigh heavily on the markets and probably not bring us back from the March lows. We’re overdue for a (lower) spike. We’ve been too easy for investors. The VIX has been too easy.
KHOON GOH, HEAD OF ASIA RESEARCH, ANZ, SINGAPORE:
“The main thing is whether or not the Strait of Hormuz remains open and we still see traffic (and) whether oil can continue to flow or not.”
“If there is still traffic going through, I think that will limit how oil prices will move. It also depends on whether we see a return to full-scale aggression, especially whether Iran starts to re-attack its GCC neighbors or not…
“A lot of strategic stocks have already gone down, so we can go back to worrying about a possible shortage of the bottle again. But I think that the markets at this stage don’t want to jump to that conclusion because, everyone is doing early and, of course, thankfully, it didn’t play out.”
LEE HARDMAN, SENIOR FINANCIAL ANALYST, MUFG, LONDON:
“This looks like the biggest escalation of chaos since the agreement until now, of course it’s hard to say what will happen, but it adds uncertainty.
“We’ve seen a big jump in oil prices, but the spillover to FX so far has been very limited. The dollar is benefiting from higher energy prices, and that positive correlation has been strengthened since the recent hawkish shift in rhetoric from the Fed. If energy prices go up, and that means inflation is up, then we’re more likely to see a rising dollar.”
(Reporting by the EMEA market team, with Caroline Valetkevitch and Lewis Krauskopf in New York; Editing by Amanda Cooper, Colin Barr; Editing by Yoruk Bahceli)
