Oil prices rise, stocks mixed ahead of US inflation data

Oil prices rose again on Wednesday (Aug 12) and stock markets were mixed, with eyes on the release of key US inflation data that could guide the Federal Reserve on its plans for interest rates.

Traders trod nervously ahead of the consumer price index (CPI) figures, which follow a report last week showing the world’s top economy lost more than 20,000 jobs last month, suggesting the labour market was slackening.

With inflation stubbornly elevated above the Fed’s two per cent target for more than five years – compounded by the Iran war since February – monetary policymakers are increasingly considering lifting borrowing costs.

The bank’s July meeting saw three board members call for an increase, dissenting from the final decision to hold rates, and investors are betting they will announce one before the end of the year, with some eyeing at least two.

Analysts pointed out that there will be one more CPI release and another jobs report before the Fed’s next meeting in September.

The higher oil prices rise, the more traders expect the Fed to tighten, and a lack of progress in talks between the US and Iran on a deal to reopen the Strait of Hormuz is adding upward momentum.

An announcement from Pakistan’s defence minister that the two were “close to some sort of arrangement” provided a sliver of hope Tuesday, though that later faded.

His remarks came after Washington and Tehran had issued demands for compensation over the five-month war, hardening their positions.

Meanwhile, a US helicopter fired missiles on Tuesday into the engine room of a Panama-flagged cargo ship that attempted to break the American blockade of Iran’s ports, the United States military said.

There was also little major reaction to a report that Iran and Oman were in advanced talks on reopening Hormuz to some maritime shipping.

The International Energy Agency on Wednesday sharply reduced its forecast for global oil demand this year, as supplies remain crimped by the Middle East crisis.
 
Both main crude contracts rose on Wednesday, and have risen around 14 per cent in the past week.
“Crude oil prices have surged in the last few days because the Strait of Hormuz remains effectively shut, and there are no signs of progress between the US and Iran,” wrote Forex.com’s Fawad Razaqzada.

“The latest headlines around talks between Oman and Iran provided some relief, but we shouldn’t confuse talks with an actual breakthrough. Iran has come out saying that the Strait of Hormuz will remain shut until their conditions are met.”

He said the positions of the US and Iran indicated “any potential deal is still some way off, meaning risks remain skewed to the upside for oil prices”.

Equity markets fluctuated ahead of the CPI release, though Seoul enjoyed another strong day as it claws back some of the huge tech-led losses sustained in July.

The Kospi climbed more than three per cent, helped by chipmakers SK hynix and Samsung, which had been at the forefront of that selloff.

The gains were helped by strong earnings reports from US AI giants CoreWeave and Super Micro Computer that eased worries about the years-long investment boom that has led many observers to question when firms will see a return.

Tokyo, Shanghai, Taipei, Manila and Jakarta also rose, though Hong Kong, Sydney, Singapore, Mumbai and Wellington were in the red.

London and Paris were both down in the morning, while Frankfurt rose.