Oil Rises on Israel-Iran Report, Dollar Weakens
Oil rose on a CNN report that new U.S. intelligence suggests Israel is preparing a potential strike on Iran’s nuclear facilities. Brent crude rose 1.7%. It was unclear whether Israeli leaders had made a final decision to carry out a strike, CNN said, citing unnamed officials. The Swiss franc and yen, traditional safe havens, edged higher amid broad dollar weakness.
Yields on Japan’s super-long sovereign fell after Tuesday’s spike, while the yield on the 30-year U.S. Treasury hovered around 5%. Futures for the S&P 500 and Nasdaq 100 fell 0.3%. Asian stocks rose 0.7%. Geopolitical tensions could add to the drag on markets, which have recently eased after a month of tariff turmoil unleashed by U.S. President Donald Trump. Investors are looking for clues on whether the recent rally in stocks can last, even as the Federal Reserve waits to get a clearer view of the economy before cutting interest rates.
“Most professional investors are still quite cautious, and I think that’s reasonable, given the economic outlook, the policy uncertainty, which is very high,” said Joe Little, chief global strategist at HSBC Asset Management in Hong Kong. Oil has been volatile since last week on mixed headlines about the fate of Iran-U.S. nuclear talks, which could pave the way for more barrels to return to a market that is expected to be oversupplied later in the year.
An Israeli strike would hamper progress in those negotiations and add to unrest in the Middle East, which supplies about a third of the world’s crude. The tensions have prompted dollar selling and yen buying by risk-averse investors. The greenback gauge has declined for three straight days.
“Certainly the U.S. dollar has lost its appeal as an undisputed safe-haven asset,” said Richard Franulovich, head of FX strategy at Westpac Banking Corp. As such, “this periodic geopolitical turmoil is going to show up more strongly in alternatives like the yen and the Swiss franc going forward.”
A weaker dollar and lower interest rates would help Asian stocks, Morgan Stanley strategists said. The Morgan Stanley Asia Pacific Index rose 0.6% on Wednesday, helped by technology companies such as Taiwan Semiconductor Manufacturing Co. and financial firms such as Mizuho Financial Group Inc.(ads)
Source: Bloomberg
