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Tag: Crude Oil Continuous Contract

  • Oil prices jump after drone attack kills U.S. troops, escalating Mideast crisis

    Oil prices jump after drone attack kills U.S. troops, escalating Mideast crisis


    Oil futures popped higher Sunday evening, after a drone attack that killed three U.S. service members in northern Jordan, blamed by the White House on Iran-backed militants, marked a major escalation of tensions in the Middle East.

    West Texas Intermediate crude for March delivery
    CL00,
    +1.22%

    CL.1,
    +1.22%

    CLH24,
    +1.22%
    was up $1.09, or 1.4%, at $79.10 a barrel on the New York Mercantile Exchange. March Brent crude
    BRN00,
    +1.15%

    BRNH24,
    +1.14%    ,
    the global benchmark, gained $1.11, or 1.3%, to trade at $84.66 a barrel on ICE Futures Europe.

    Much will ultimately depend on the U.S. response and whether Iran takes action aimed at shutting down the Strait of Hormuz, Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch on Sunday afternoon.

    “We are on the cusp of this escalating, which could seriously impact the flow of crude oil,” he said.

    Three U.S. service members were killed and more than two dozen injured in a drone strike on a U.S. base in northeast Jordan, according to U.S. Central Command. They were the first U.S. fatalities in months of attacks on U.S. bases by Iran-backed militias since the start of the Israel-Hamas war in October.

    President Joe Biden attributed the Sunday attack to an Iran-backed militia group and said the U.S. “will hold all those responsible to account at a time and in a manner (of) our choosing.” News reports said U.S. officials were still working to conclusively identify the precise group responsible for the attack, but have assessed that one of several Iranian-backed groups is to blame.

    Some congressional Republicans called for direct retaliation on Iran.

    “We must respond to these repeated attacks by Iran & its proxies by striking directly against Iranian targets & its leadership. The Biden administration’s responses thus far have only invited more attacks. It is time to act swiftly and decisively for the whole world to see,” wrote Sen. Roger Wicker of Mississippi, the senior Republican on the Senate Armed Services Committee, in a post on X.

    Oil futures rallied last week to their highest since November, but with gains attributed in part to production outages in the U.S. and more upbeat expectations around economic growth.

    “Crude already has the wind to its back, so this will only offer further upside,” Chris Weston, head of research at Australian brokerage Pepperstone told MarketWatch in an email.

    With the U.S. election later this year, “Biden needs to strike a balance between increasing aggression that potentially puts U.S. serviceman lives in danger and could potentially raise the cost of living…while also showing a defiant stance that shows his resolve against terror,” Weston said.

    Oil prices have seen short-lived rallies around developments in the Middle East since the start of the Israel-Hamas war, but have failed to build in a lasting geopolitical risk premium. West Texas Intermediate crude
    CL00,
    +1.22%

    CL.1,
    +1.22%    ,
    the U.S. benchmark, remains around $15 below its 2023 peak in the mid-$90s set in late September. Brent crude
    BRN00,
    +1.15%    ,
    the global benchmark, pushed back above $80 a barrel last week.

    Attacks by Iran-backed Houthi militants on Red Sea shipping have forced a rerouting of tankers and cargo ships. For crude, that’s had implications for the physical market but hasn’t interrupted the flow of crude from the Middle East.

    A move by Iran aimed at closing off the Strait of Hormuz, the world’s biggest oil-transportation chokepoint, remains a top worry.

    The strait is a narrow waterway that links the Persian Gulf with the Gulf of Oman and the Arabian Sea. At its narrowest point, the waterway is only 21 miles wide, and the width of the shipping lane in either direction is just two miles, separated by a two-mile buffer zone.


    Energy Information Administration

    Around 21 million barrels a day of crude moved through the waterway in the first half of 2023, equivalent to around a fifth of daily global consumption, according to the U.S. Energy Information Administration.

    The U.S. stock market has largely looked past Middle East tensions, with the S&P 500
    SPX
    returning to record territory this month, while the Dow Jones Industrial Average
    DJIA
    has also set a series of records.

    Dow futures
    YM00,
    -0.20%
    were off 94 points, or 0.3% as Asian trading got under way, while S&P 500 futures
    ES00,
    -0.22%
    fell 12 points, or 0.2%, and Nasdaq-100 futures
    NQ00,
    -0.24%
    lost 0.3%.

    Read: Stock-market rally faces Fed, tech earnings and jobs data in make-or-break week

    Away from oil, there were no signs of a significant surge in demand for instruments that traditionally serve as havens during periods of increased geopolitical tension. Futures on U.S. Treasurys
    TY00,
    +0.21%
    saw a modest rise of 0.2%, while the U.S. dollar
    DXY
    was little changed versus major rivals and gold futures
    GC00,
    +0.41%
    ticked up 0.4%.

    Escalating Middle East tensions won’t go unnoticed by traders, but probably doesn’t warrant a “solid derisking,” Weston said, particularly with investors facing a barrage of major market events in the week ahead.

    For U.S.-focused investors, the week ahead features a Federal Reserve policy meeting, earnings from tech industry heavyweights and a crucial December jobs report.

    The Middle East situation “won’t take us too far off the rates, growth track, but we have an eye on whether this escalates,” Weston said.

    —Associated Press contributed.





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  • Oil prices end lower as crude suffers first losing year since 2020

    Oil prices end lower as crude suffers first losing year since 2020

    Oil futures ended slightly lower Friday on the final trading day of 2023, capping crude’s first losing year since 2020 as concerns about the demand outlook outweighed potential supply disruptions and efforts by OPEC and its allies to limit production.

    Price action

    • West Texas Intermediate crude for February delivery
      CL00,
      -0.45%

      CL.1,
      -0.45%

      CLG24,
      -0.45%
      fell 12 cents, or 0.1%, to close at $71.65 a barrel on the New York Mercantile Exchange.

    • March Brent crude
      BRN00,
      +0.05%

      BRNH24,
      +0.05%      ,
      the global benchmark, fell 11 cents, or 0.1%, to settle at $77.04 a barrel on ICE Futures Europe.

    • Back on Nymex, January gasoline
      RBF24
      rose 0.8% to $2.103 a gallon, while January heating oil
      HOF24
      fell 0.1% to $2.553 a gallon.

    • February natural gas
      NGG24,
      -0.64%
      declined 1.7% to finish at $2.514 per million British thermal units.

    Market drivers

    WTI, the U.S. benchmark, slumped 21.1% in the fourth quarter and suffered a yearly fall of 10.7%. Brent tumbled over 19% in the final three months of the year, posting an annual loss of 10.3%.

    Gasoline futures dropped 14.5% in 2023, while heating oil declined 24.1%. Natural gas plunged nearly 44%.

    Crude had rallied over the summer as the Organization of the Petroleum Exporting Countries and its allies, together known as OPEC+, maintained production cuts, with Saudi Arabia throwing in a voluntary reduction of 1 million barrels a day beginning in July and Russia moving to curb exports. While production cuts have been rolled over into early 2024, oil peaked in late September as expectations for a significant supply deficit failed to materialize.

    Increased production by the U.S., which saw its output hit record levels in 2023, and other non-OPEC producers have also capped the upside for crude, analysts said.

    Read: Why oil may not see a return to $100 a barrel in 2024

    Oil futures jumped in the wake of the outbreak of the Israel-Hamas war in October on fears that a broader conflict could cramp supplies from the Middle East, but crude failed to challenge its September highs and soon eroded its geopolitical-risk premium. Prices bounced somewhat in December as attacks by Yemen’s Iran-backed Houthi rebels on shipping vessels in the Red Sea sparked a round of rerouting, but gains have proven difficult to sustain.

    Instead, investors “have started to focus on the risk that there may be excessive supply in oil markets next year, and insufficient demand,” said Marios Hadjikyriacos, senior investment analyst at XM, in a note.

    “Even though OPEC+ has taken repeated steps to rein in production and support prices, it is unlikely to pursue the same strategy for much longer, as it would forfeit more market share to U.S. producers who have dialed up their own production to record levels,” he wrote.

    Natural-gas prices, meanwhile, have slumped recently on a warmer-than-normal winter, said Lu Ming Pang, senior analyst at Rystad Energy, in a Friday note.

    The number of heating-degree days (HDDs), which reflect the extent of heating required, has been below normal so far, with a deviation of 28 fewer HDDs from the normal reported on Dec. 15, the analyst noted. HDDs are forecast to rise through Jan. 5 but remain slightly below normal.

    “Gas demand for heating is likely to rise as a result but will still remain below seasonal norms,” Pang said. “A combination of warmer weather, high underground-storage levels, and high domestic gas production is expected to keep U.S. prices suppressed.”

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  • Oil prices post first weekly gain in 8 weeks amid ship attacks in Red Sea

    Oil prices post first weekly gain in 8 weeks amid ship attacks in Red Sea

    Oil futures fell on Friday, but finished off the session’s lows to eke out a gain for the week — the first for U.S. and global benchmark crude prices in eight weeks.

    Attacks on ships traveling through the Red Sea, blamed on Yemen’s Houthi rebels, raised the potential for disruptions to the transport of oil and other goods, providing some support for prices.

    Oil saw larger declines early Friday after a Federal Reserve official walked back dovish comments made earlier this week by the Fed Chair Jerome Powell, helping to strengthen the U.S. dollar.

    Price action

    • West Texas Intermediate crude for January
      CL00,
      +0.49%

      CL.1,
      +0.49%

      CLF24,
      +0.49%
      declined by 15 cents, or 0.2%, to settle at $71.43 a barrel on the New York Mercantile Exchange, with prices ending 0.3% higher for the week, according to Dow Jones Market Data.

    • February Brent crude
      BRN00,
      +0.52%

      BRNG24,
      +0.52%      ,
      the global benchmark, fell 6 cents, or nearly 0.1%, to $76.55 a barrel on ICE Futures Europe, settling 0.9% higher for the week.

    • January gasoline
      RBF24,
      -0.16%
      added 0.9% to $2.14 a gallon, up almost 4.3% for the week, while January heating oil
      HOF24,
      +0.20%
      climbed 1.1% to $2.62 a gallon on Nymex, marking a weekly rise of 1.5%.

    • Natural gas for January delivery
      NGF24,
      -0.88%
      gained 4.1% to $2.49 per million British thermal units, but still logged a weekly loss of 3.5%.

    Price support

    Danish shipping company A.P. Moeller-Maersk
    MAERSK.A,
    +7.52%
    said it will pause all of its container shipments through the Red Sea until further notice and detour them around Africa, Reuters and Bloomberg reported Friday, amid rising risks to its fleet posed by Houthi militants.

    The Red Sea is “one of the hot pockets of seaborne crude flows,” accounting for approximately 10% of global volume, said Manish Raj, managing director at Velandera Energy Partners. “Although the attackers lack sophistication … shipping crews are even less sophisticated, making them easy targets.” 

    A potential blockage of the Red Sea route would be “chaotic indeed, but not nearly as detrimental as blockage of [the] Strait of Hormuz near Iran, for which there is no viable alternative,” Raj said.

    Read from the AP: How are Houthi attacks on ships in the Red Sea affecting global trade?

    For now, there is concern over higher insurance costs for these ships, said Phil Flynn, senior market analyst at the Price Futures Group.

    “With ships in the Red Sea continuing to be at high risk, ‘it won’t take that much for the market’ to see oil prices spike if an oil tanker should be hit.”


    — Phil Flynn, Price Futures Group

    Obviously, the risk to oil supply is large, although “so far, most of the attacks have been on cargo ships and not oil-related ships,” Flynn told MarketWatch.

    However, as ships in the Red Sea continue to be at high risk, “it won’t take that much for the market” to see oil prices spike if an oil tanker is hit, Flynn said.

    For the week, both U.S. and global benchmark crude prices posted gains.

    “The combination of lower U.S. inventories, stronger economic data, and improved OPEC compliance [with production cuts] for the month of November were the highlights of the week,” said Peter McNally, global head of sector analysts at Third Bridge.

    “However, there are ongoing seasonal challenges that forced OPEC to sustain production cuts through the first quarter of 2024, so it remains to be seen if they have done enough to prevent inventories from continuing their upward trend,” he said.

    Read The Year Ahead: Why oil may not see a return $100 a barrel in 2024

    Price pressures

    Oil had been trading lower early Friday after New York Federal Reserve President John Williams told CNBC that it is “premature” to discuss whether it is time to cut interest rates. “We aren’t really talking about cutting interest rates right now,” Williams said.

    That ran contrary to Powell’s comments Wednesday that Fed officials were starting to discuss when to cut rates.

    After the euphoria in the U.S. stock market over the Powell “pivot party” on Wednesday, we got a “wake-up call” from Williams when he pushed back on market expectations for a March rate cut, Michael Hewson, chief market analyst at CMC Markets UK, said in market commentary.

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  • Oil prices drop to 2-week lows as doubts linger over OPEC+ production cuts

    Oil prices drop to 2-week lows as doubts linger over OPEC+ production cuts

    Oil futures fell Monday to their lowest levels in more than two weeks, building on recent declines that came after a round of voluntary production cuts announced by OPEC+ left traders skeptical about compliance.

    Price action

    • West Texas Intermediate crude for January delivery
      CL00,
      -0.63%

      CL.1,
      -0.63%

      CLF24,
      -0.63%
      fell 85 cents, or 1.2%, to $73.22 a barrel on the New York Mercantile Exchange,

    • February Brent crude
      BRN00,
      -0.44%

      BRNG24,
      -0.44%
      dropped $1.29, or 1.6%, $77.59 a barrel on ICE Futures Europe.

    • January gasoline was down 0.1% at $2.1198 a gallon, while January heating oil
      HOF24,
      +0.85%
      edge down 0.4% to $2.6501 a gallon.

    • January natural gas
      NGF24,
      -4.48%
      declined 5.3% to $2.664 per million British thermal units.

    Market drivers

    The OPEC+ deal last week was “unconvincing, to say the least, and oil prices have been in decline ever since,” said Craig Erlam, senior market analyst at OANDA.

    “With markets seemingly anticipating more of an economic slowdown next year, the announcement simply doesn’t go far enough,” he said in market commentary. “It’s another large cut but how much will actually be delivered on? And are we at the limits of what the alliance is willing to achieve to balance the markets?”

    Crude prices ended last week with back-to-back losses after OPEC+ producers on Thursday agreed to voluntarily cut around 2.2 million barrels a day (mbd) of crude from the market in the first quarter of next year, a figure that included a widely expected extension of Saudi Arabia’s 1 mbd voluntary output cut and Russia’s 300,000 barrel a day cut to crude exports.

    OPEC+ cuts “look like they have rebalanced the market” for the first quarter of next year, but without further OPEC+ cuts in supply from the second quarter, “oil looks to register a 1 mbd surplus in that quarter, analysts at Citi wrote in a note dated Monday.

    The voluntary nature of the overall reductions sparked skepticism around enforcement and compliance, analysts said.

    “Soft price action since the OPEC+ meeting is reflective of an investor cohort that remains perplexed on how to deploy risk. The near-term path of least resistance is lower, given the degree of ambiguity and lack of catalysts,” Michael Tran, commodity and digital intelligence strategist at RBC Capital Markets, said in a Sunday note.

    “Oil has become a ‘show me’ type market. Now here comes the hard part: Prices will likely remain volatile and potentially directionless until the market sees clear data points pertaining to the voluntary output cuts,” he said.

    Those cuts won’t be implemented until next month, with country-level production and export data to follow. That means it will be a “long and volatile” two months before there is even preliminary clarity on compliance — “a long stretch for a market that is seeing a high degree of uncertainty, lack of risk deployment and a liquidity vacuum,” Tran wrote.

    Traders were also monitoring developments in the Middle East following an escalation of maritime attacks related to the Israel-Hamas war.

    Ballistic missiles fired by Yemen’s Houthi rebels hit three commercial ships Sunday in the Red Sea, while a U.S. warship shot down three drones in self-defense during the hourslong assault, according to the U.S. military. The Iranian-backed Houthis claimed two of the attacks.

    Oil futures spiked higher following the Hamas attack on southern Israel on Oct. 7 but failed to challenge their late September highs. Crude subsequently fell back as fears of a broader conflict that could threaten crude flows faded, trading well below levels seen just before the start of the conflict.

    — Associated Press contributed.

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  • Here’s how much aid the U.S. gives to Israel — and why it may get billions of dollars more

    Here’s how much aid the U.S. gives to Israel — and why it may get billions of dollars more

    Israel’s military campaign against Hamas has entered its sixth week, and the country is facing a growing backlash against the humanitarian toll of the war as well as uncertainty over the fate of a U.S. military aid package that has stalled amid partisan bickering in Washington, D.C.

    President Joe Biden has requested $14.3 billion in military assistance for Israel as it seeks to destroy Hamas after the group killed 1,200 Israeli citizens and took more than 200 hostage last month. More than 12,000 Palestinians have died in…

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  • Oil falls, markets hold steady as Israel launches Gaza ground offensive

    Oil falls, markets hold steady as Israel launches Gaza ground offensive

    Oil futures dropped Sunday night as markets saw a calm opening following Israel’s launch of a ground offensive in Gaza that drew implied threats from Iran amid market fears of a wider conflict that could disrupt global crude supplies.

    Oil declined as Israel “seems to be approaching the situation with caution, which has brought a sense of relief that the worst-case scenarios may not materialize,” said Stephen Innes, managing partner at SPI Asset Management, in a note.

    Innes, however, said investors should remember “this is likely to be a long, drawn-out affair with many false dawns.”

    West Texas Intermediate crude for December delivery
    CL00,
    -1.51%

    CL.1,
    -1.51%

    CLZ23,
    -1.51%
    fell 93 cents, or 1%, to $84.61 a barrel on the New York Mercantile Exchange on Sunday night. December Brent crude
    BRNZ23,
    -1.34%    ,
    the global benchmark, was off $1, or 1.1%, at $89.48 a barrel on ICE Futures Europe, dipping back below the $90-a-barrel threshold.

    Oil futures jumped nearly 3% on Friday, but suffered weekly declines, eroding the modest risk premium priced into the market.

    Read: 4 reasons why oil prices have only seen a modest Middle East risk premium

    Israeli solders had moved at least two miles deep into the Gaza Strip as of Sunday, the Wall Street Journal reported, after beginning a delayed ground incursion into the enclave aimed at routing Hamas following its Oct, 7 attack on southern Israel that left more than 1,400 dead and saw more than 200 Israelis taken hostage.

    A sustained bombardment of the densely populated Gaza Strip by Israel has resulted in more than 8,000 casualties, according to Palestinian authorities. Israel has been under pressure by the U.S. and others to minimize civilian casualties.

    U.S. stock-index futures ticked higher, with S&P 500 futures
    ES00,
    +0.32%
    up 0.3%, while futures on the Dow Jones Industrial Average
    YM00,
    +0.20%
    added 68 points, or 0.2%.

    The biggest worry among investors is a conflict that sees Iran become more directly involved. Iranian crude exports have rebounded from lows seen after the Trump administration withdrew the U.S. from a nuclear accord with Tehran and reimposed sanctions in 2018.

    A renewed crackdown on Iran could take up to 1 million barrels a day of crude off the market, while a spiraling conflict could see Tehran threaten transportation chokepoints, particularly the Strait of Hormuz, or otherwise attack infrastructure in the region, while driving up a fear premium.

    Iranian President Ibrahim Raisi, in a post on X written in English, said Saturday that Israel had “crossed the red lines, which may force everyone to take action.”

    U.S. warplanes on Friday struck two locations in eastern Syria, which the Pentagon said were linked to Iran’s Revolutionary Guard Corps, following a string of attacks on U.S. air bases in the region that started last week.

    U.S. stocks are poised to book another round of monthly losses as October draws to an end, though pressure has been attributed largely to a surge in Treasury yields. The S&P 500
    SPX
    last week joined the Nasdaq Composite
    COMP
    in correction territory, while the Dow
    DJIA
    is down more than 2% year to date.

    The rise in yields, which move opposite price, has come as U.S. government debt has failed to attract its usual haven-related buying amid rising Mideast tensions.

    See: Israel-Hamas war sees investors shun most traditional havens, except for these two

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  • Dow Jones ekes out gain Friday, stocks mostly advance for the week as Israel-Gaza war escalates

    Dow Jones ekes out gain Friday, stocks mostly advance for the week as Israel-Gaza war escalates

    U.S. stocks closed mostly lower Friday, but the Dow Jones and S&P 500 posted weekly gains, as the Israel-Gaza war appeared to escalate heading into the weekend. The Dow Jones Industries
    DJIA,
    +0.12%
    rose about 39 points, or 0.1%, on Friday, ending near 33,670, according to preliminary FactSet data. The S&P 500 index
    SPX,
    -0.50%
    fell 0.5% and the Nasdaq Composite Index
    COMP,
    -1.23%
    closed 1.2% lower. The S&P 500’s energy segment outperformed Friday, gaining 2.3%, as U.S. benchmark crude surged nearly 6% after Israel ordered more than a million people in Gaza to evacuate to the south. Treasury yields fell, with the 10-year Treasury
    TMUBMUSD10Y,
    4.626%
    rate retreating to 4.628% Friday, snapping a 5-week yield climb, according to Dow Jones Market Data. Bond prices and yields move in the opposite direction. Investors bought other haven assets too, including gold
    GC00,
    +0.23%
    and the U.S. dollar
    DXY,
    +0.07%    .
    Wall Street’s “fear gauge”
    VIX,
    +15.76%
    also touched its highest level in more than a week. Even so, the Dow Jones booked at 0.8% weekly gain, the S&P 500 advanced 0.5% and the Nasdaq fell 0.2%.

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  • U.S. stocks post 3-session climb as bond yields, oil retreat

    U.S. stocks post 3-session climb as bond yields, oil retreat

    U.S. stocks booked a 3-session win streak Tuesday as oil prices and bond yields retreated. The Dow Jones Industrial Average
    DJIA,
    +0.40%
    climbed about 134 points, or 0.4%, ending near 33,739, according to preliminary FactSet data. That was the longest streak of straight wins for the blue-chip index in a month, and the best three days of gains since late August, according to Dow Jones Market Data. The S&P 500 index
    SPX,
    +0.52%
    advanced 0.5% and the Nasdaq Composite Index
    COMP,
    +0.58%
    gained 0.6%. It was the third session in a row of gains for all three indexes. The brighter backdrop for stock market came as oil prices
    CL00,
    -0.69%
    and bond yields
    TMUBMUSD10Y,
    4.663%
    retreated and after Raphael Bostic, head of the Atlanta Fed, said he didn’t think additional rate hikes were needed to bring inflation down to the central bank’s 2% annual target, but also that he still sees rates staying high for a “long time.”

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  • Will Israel-Gaza war sink stocks and shake the global economy? Watch oil prices.

    Will Israel-Gaza war sink stocks and shake the global economy? Watch oil prices.

    Wall Street on Monday shook off a bout of selling sparked by the Israel-Gaza war.

    That’s in keeping with the historical tendency of investors to look past geopolitical conflict and human tragedy, but it isn’t necessarily the last word. That last word will likely belong to oil traders.

    “Oil rallied today yet remains below the near-term peak from last month. If oil prices rise higher for longer, the global economy could feel a resurgence of inflation during a period when investors are hoping inflation is clearly decelerating,” said Jeffrey Roach, chief economist for LPL Financial, in emailed comments.

    Roach also noted that, in general, markets tend to have difficulty pricing the difference between a temporary shock and a permanent shock.

    For now, however, the jump in oil prices isn’t signaling a permanent shock. Sure, Brent crude
    BRN00,
    +0.11%    ,
    the global benchmark, jumped 4.2% on Monday to end at $88.15 a barrel, while West Texas Intermediate crude
    CL.1,
    +0.07%

    CL00,
    +0.07%
    surged $3.59, or 4.3% to $86.38 a barrel — the biggest one-day jump for both grades since April 3.

    See: Here’s what Israel-Gaza war means for oil prices as fighting continues

    The jump was impressive, but it comes after a big pullback last week that saw both WTI and Brent retreat from 2023 highs near $100 a barrel.

    So if crude can manage to close above those highs — $93.68 a barrel for WTI — investors across other markets will likely take notice.

    What would it take to drive crude back toward the highs? The focus is on Iran.

    The Wall Street Journal on Sunday reported that Iranian security officials helped plan the attack by Hamas. The Israeli military has said there is no concrete evidence of Iranian involvement, according to news reports.

    A direct role by Iran, a longtime ally of Hamas, would raise the threat of a broader conflict.

    Some analysts have put Iranian crude production at more than 3 million barrels a day and exports above 2 million barrels a day — the highest levels since the Trump administration pulled the U.S. out of the Iranian nuclear accord in 2018, according to the Wall Street Journal. Sales fell to around 400,000 barrels a day in 2020 as the U.S. reimposed sanctions.

    “If Israel discovers that Iran played a role in Hamas’ attack, it could retaliate militarily. At the very least, any warming of relations between Iran and the West is now on hold and this will limit incremental oil supply,” said Nicholas Colas, co-founder of DataTrek Research, in a Monday note.

    It’s a reminder that “while neither Israel nor Gaza are major oil producers, everything that happens geopolitically in the Middle East invariably ends up affecting oil prices,” he said.

    The potential for a broader conflict could lead to a “sharp market correction,” argued Olivier d’Assier, head of applied research, APAC, at Axioma.

    The scale of the conflict, the largest since the Yom Kippur War 50 years ago, renders comparisons with how markets have shaken off past geopolitical incidents, but they may be irrelevant in terms of stress testing, he argued.

    “The closest historical scenarios we could use would be 9/11 and the start of the Ukraine war. But because both took place on Western soil, they might not be adequate,” d’Assier said.

    On Monday, however, remarks by Federal Reserve officials ultimately trumped the rise in crude prices and jitters over the Middle East. Dallas Fed President Lorie Logan and Fed Vice Chair Philip Jefferson both noted the rise in long-term Treasury yields and their role in tightening financial conditions, which investors took as a signal the Fed may not be as likely to further raise interest rates.

    See: An Israel-Hamas war could change what the Fed does about interest rates

    Stocks turned north after a morning dip, with the Dow Jones Industrial Average
    DJIA
    rising nearly 200 points, or 0.6%, while the S&P 500
    SPX
    also advanced 0.6% and the Nasdaq Composite
    COMP
    gained 0.4%.

    For now, market participants appear set to look ahead to economic data later this week, including September consumer-price index and producer-price index readings.

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  • U.S. stocks end higher despite climbing oil prices, Israel-Gaza war

    U.S. stocks end higher despite climbing oil prices, Israel-Gaza war

    U.S. stocks booked back-to-back gains on Monday, despite rising oil prices and a deadly weekend assault on Israeli by Hamas that left hundreds dead. The Dow Jones Industrial Average
    DJIA,
    +0.59%
    rose about 197 points, or 0.6%, ending near 33,604, shaking off earlier weakness, while the S&P 500 index
    SPX,
    +0.63%
    advanced 0.6% and the Nasdaq Composite Index
    COMP,
    +0.39%
    gained 0.4%, according to preliminary FactSet data. U.S. benchmark oil prices
    CL00,
    +4.34%
    rose 4.3% to $86.38 a barrel as traders gauged potential implications of the Israel-Gaza war on crude supplies from the Middle East. Investors also flocked to haven assets, including gold
    GC00,
    +1.62%
    and the U.S. dollar
    DXY,
    +0.03%    ,
    while cash trading in the $25 trillion Treasury market was closed for the Columbus Day and Indigenous Peoples Day holiday. Israel on Monday seal off the Gaza Strip from food, fuel and other supplies as the conflict between Israel and Hamas intensified, according to the Associated Press.

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  • Oil prices jump 4% after Hamas attack on Israel

    Oil prices jump 4% after Hamas attack on Israel

    Oil futures opened with strong gains late Sunday as traders reacted to an attack by Hamas on Israel, raising Middle East tensions and stoking worries about the outlook for crude supply.

    Price action

    Market drivers

    Oil traders were focused on Iran after a weekend attack on multiple fronts by Hamas militants, who are backed by Tehran. The Wall Street Journal reported that Iranian security officials helped Hamas plan the attack, which has left more than 700 Israelis dead and saw dozens of Israeli citizens and soldiers abducted. Israel pounded Gaza in retaliation, where the death toll was also reported in the hundreds.

    Analysts said that if Iranian involvement is affirmed, it could lead the U.S. to increase enforcement of sanctions on the country’s crude exports, which have moved back toward pre-2018 levels in recent months.

    “Historical analysis suggests that oil prices tend to experience sustained gains after the Middle East crises,” said Stephen Innes, managing director at SPI Asset Management, in a note.

    Oil fell last week, retreating after Brent moved within a few dollars of the $100-a-barrel threshold last month and WTI briefly topped $95 a barrel for the first time in more than a year.

    Some analysts have put Iranian crude production at more than 3 million barrels a day and exports above 2 million barrels a day — the highest levels since the Trump administration pulled the U.S. out of the Iranian nuclear accord in 2018, according to the Wall Street Journal. Sales fell to around 400,000 barrels a day in 2020 as the U.S. reimposed sanctions.

    See: U.S. stock futures tumble after Hamas attack on Israel

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  • ‘Fear trade’: What Israel-Hamas war means for oil prices and financial markets

    ‘Fear trade’: What Israel-Hamas war means for oil prices and financial markets

    Oil traders on Sunday said crude prices were likely to remain supported in the near term, as investors assessed the fallout from the surprise attack by Hamas on Israel and focused on the role played by Iran and the potential impact on that country’s petroleum exports.

    The conflict may also hold market-moving consequences for talks aimed at normalizing relations between Saudi Arabia and Israel.

    “While in the short term there is no impact directly on supply, it’s obvious how things play out over the next 24 to 48 hours could change that,” Phil Flynn, an analyst at Price Futures Group in Chicago, told MarketWatch.

    Brent crude futures
    BRN00,
    +4.17%    ,
    the global benchmark, and West Texas Intermediate oil futures
    CL00,
    +4.35%

    CL.1,
    +4.35%
    jumped more than 3% when the market opened Sunday night. U.S. stock-index futures
    ES00,
    -0.66%
    traded lower, while traditional havens, including gold
    GC00,
    +0.98%
    and the U.S. dollar
    DXY
    rose.

    Movements in oil prices, meanwhile, will also serve as a gauge for broader market worries around the conflict, analysts said.

    See: Israeli stocks slump in first day of trade since Gaza attack

    Hamas, the Iran-backed, Palestinian militant group that controls the Gaza Strip, staged a sweeping attack on southern Israel early Saturday. News reports put Israeli deaths at more than 700. The Gaza Health Ministry said 413 people, including 78 children and 41 women, were killed in the territory as Israel retaliated, according to the Associated Press. Injuries in Israel and Gaza were both said to be around 2,000.

    Israeli troops on Sunday were engaged in fierce fighting in an effort to retake territory in southern Israel as Hamas launched further barrages of missiles. Israeli citizens and soldiers were captured and are being held hostage in Gaza, according to the Israeli military.

    Read: Israel declares war, approves ‘significant’ steps to retaliate after surprise attack by Hamas

    The Wall Street Journal reported that Iranian security officials helped Hamas plan the attack. U.S. officials said they haven’t seen evidence of Iran’s involvement, the report said.

    “Iran remains a very big wild card and we will be watching how strongly [Israeli] Prime Minister Netanyahu blames Tehran for facilitating these attacks by providing Hamas with weapons and logistical support,” said Helima Croft, head of global commodity strategy at RBC Capital Markets, in a Sunday morning note.

    Iranian crude exports have risen in recent years, indicating the Biden administration has adopted a soft approach to sanctions enforcement, Croft said. Some analysts have put Iranian crude production at more than 3 million barrels a day and exports above 2 million barrels a day — the highest levels since the Trump administration pulled the U.S. out of the Iranian nuclear accord in 2018, according to the Wall Street Journal. Sales fell to around 400,000 barrels a day in 2020 as the U.S. reimposed sanctions.


    RBC Capital Markets

    Hedge-fund manager Pierre Andurand, one of the world’s best energy traders, said in a social-media post that a large price spike for oil isn’t likely in coming days, but emphasized the market focus on Iran.

    “Now, over the last six months we have seen a very large increase in Iranian supply due to weak enforcement of sanctions. As Iran is also behind Hamas’ attacks on Israel, there is a good probability that the U.S. administration will start enforcing those sanctions on Iranian oil exports more tightly,” he wrote. “That would further tighten the oil market. Also the probability that this will lead to direct conflict with Iran is not zero.”

    Meanwhile, the Wall Street Journal late Friday reported that Saudi Arabia had told the White House it would be willing to boost oil production next year if crude prices remained high, as part of an effort aimed at winning goodwill in Congress for a deal that would see the kingdom recognize Israel and in return get a defense agreement with the U.S.

    A Saudi production cut of 1 million barrels a day that was implemented in July and recently extended through the end of the year has been given much of the credit for a rally that took global benchmark Brent crude within a few dollars of the $100-a-barrel threshold before retreating this past week. The U.S. benchmark last week briefly topped $95 a barrel for the first time in 13 months.

    In a statement, Saudi Arabia’s foreign ministry called on both sides to halt the escalation and exercise restraint, but also recalled its “repeated warnings of the dangers of the explosion of the situation as a result of the continued occupation, the deprivation of the Palestinian people of their legitimate rights, and the repetition of systematic provocations against its sanctities.”

    With the Israeli government vowing an unprecedented response, “it is hard to envision how Saudi normalization talks can run on a parallel track to a ferocious military counteroffensive,” said RBC’s Croft.

    Beyond oil, much will depend on the potential for the conflict to widen.

    Stocks have stumbled, retreating from 2023 highs set in late July, as yields on U.S. Treasurys have jumped. The yield on the 30-year Treasury bond
    BX:TMUBMUSD30Y
    rose 23.2 basis points last week to end Friday at 4.941%, its highest since Sept. 20, 2007. The 10-year Treasury note yield
    BX:TMUBMUSD10Y
    topped 4.80% on Oct. 3, its highest since Aug. 8, 2007, and ended the week at 4.783%. Yields and debt prices move opposite each other.

    The U.S. bond market will be closed Monday for the Columbus Day and Indigenous People’s Day holiday, while U.S. stock markets will be open.

    The S&P 500 index
    SPX
    rose 0.5% last week, breaking a streak of four straight weekly declines, while the Dow Jones Industrial Average 
    DJIA
    fell 0.3% and the Nasdaq Composite
    COMP
    gained 1.6%.

    “I think there will be a negative reaction. However, I don’t see a meltdown,” Peter Cardillo, chief market economist at Spartan Capital Securities, told MarketWatch.

    Traditional haven plays, including gold, the dollar and U.S. Treasurys may see a strong move upward, with price gains for Treasurys pulling yields down.

    “Geopolitical crises in the Middle East have usually caused oil prices to rise and stock prices to fall,” said economist Ed Yardeni, president of Yardeni Research Inc., in a note. “More often than not, they’ve also tended to be buying opportunities in the stock market.”

    The broader market reaction will depend on whether the crisis turns out to be a short-term flare-up or “something much bigger, like a war between Israel and Iran,” he said. The latter is unlikely, but tensions between the two are likely to escalate.

    “The price of oil may be a good way to assess the likelihood of a broader conflict,” he said.

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  • Here’s how the Republican presidential candidates say they’ll whip inflation

    Here’s how the Republican presidential candidates say they’ll whip inflation

    Inflation remains a top concern among Americans, so what do the Republicans seeking President Joe Biden’s job say they’ll do about it?

    MarketWatch asked the 2024 GOP White House hopefuls to give at least three ways that they would address the elevated prices that have blown up many household budgets.

    Most campaigns provided responses, while some didn’t but have offered proposals in other venues. See what they’re all planning below.

    The economy is the No. 1 issue for Republican voters, according to a recent Wall Street Journal poll, which found 36% citing the economy generally and an additional 10% citing inflation.

    MarketWatch contacted the eight contenders who took part in their primary’s first debate, along with former President Donald Trump, who skipped the debate, and two relatively well-known contenders who failed to qualify for the first debate, Larry Elder and former Congressman Will Hurd. They are listed below in order of their ranking in the latest polls, based on a RealClearPolitics moving average.

    Inflation was low when Trump became president, with prices rising less than 2% a year. That was even considered a problem before the COVID-19 pandemic, with inflation often characterized as stubbornly or persistently low. Inflation began to spike in 2021, shortly after Biden took office, due to a global shortage of goods and a huge rebound in consumer demand following the pandemic’s early stages. Economists say massive stimulus by both the Trump and Biden administrations as well as low interest rates fostered by the Federal Reserve helped to push inflation to a 40-year high.

    Biden has stressed that inflation, as measured by the consumer-price index, has “fallen by around two-thirds,” and he and his team have talked up their efforts to lower costs for prescription drugs and insulin, to crack down on junk fees for a range of services, and to use the Strategic Petroleum Reserve to lower gasoline prices. Biden’s re-election campaign didn’t respond to MarketWatch’s request for comment.

    Donald Trump

    “I would get inflation down,” Trump said in a recent interview with NBC’s “Meet the Press,” while saying that “we did a great job with inflation.” His campaign pointed MarketWatch to a number of policy proposals in which Trump himself is quoted.

    Former President Donald Trump walks over to speak with reporters before departing from Atlanta’s airport last month.


    AP

    • The former president says he’ll rein in what he calls Biden’s “wasteful spending,” which Trump says is key to stopping inflation. Trump is proposing to use what’s known as impoundment authority to reduce federal spending. That term refers to the ability of a president to withhold congressionally appropriated funds from their intended use, according to the Committee for a Responsible Federal Budget.

    • Trump also calls for boosting energy output. “When I’m back in the White House, I will immediately unleash energy production, slash regulations, like I did just three years ago, and repeal Biden’s tax hikes to get inflation down as fast as possible, and it will go quickly, so that interest rates can get back under control,” Trump says on his campaign website. “I would get inflation down, because drill we must,” he told “Meet the Press.”

    • A Trump spokesman did not respond when asked for specifics about which Biden-approved tax increases Trump would repeal. The former president and his advisers, meanwhile, have reportedly discussed deeper cuts to both individual and corporate rates that would build on the 2017 Tax Cuts and Jobs Act.

    Ron DeSantis

    Florida Gov. Ron DeSantis, says a spokesman, “will reduce inflation by, among other measures, tackling government spending, unleashing domestic energy and removing burdensome Biden administration regulations.”

    Florida Gov. Ron DeSantis speaks in July during a press conference in West Columbia, S.C.


    AP Photo/Sean Rayford

    • In his economic plan, DeSantis leans heavily into energy policy for addressing inflation. “DeSantis will unleash our domestic energy sector, modernize and protect our grid and advance American energy independence. This will not only increase our economic and national security while reducing inflation, [but] it will also help fuel a manufacturing renaissance that will create jobs, revitalize our communities and improve our standard of living,” says his plan.

    • He told “CBS Evening News with Norah O’Donnell” that, as president, he would “stop spending so much money. We need a president that’s going to be a force for spending restraint, because that’s one of the root causes, with Congress spending so much.” He criticized both Democrats and Republicans for government spending.

    Vivek Ramaswamy

    Republican presidential candidate Vivek Ramaswamy speaks in April at an event in Iowa.


    AP

    “This isn’t complicated,” entrepreneur and author Vivek Ramaswamy said in a recent post on X. “Fight inflation, unleash growth by taking the handcuffs [off] the U.S. energy sector & dismantling the regulatory state.” His campaign didn’t respond to MarketWatch’s request for comment, but his campaign website offers the following proposals:

    • “Drill, frack & burn coal : abandon the climate cult & unshackle nuclear energy.”

    • “Launch deregulatory ‘Reagan 2.0’ revolution: cut > 75% headcount amongst U.S. regulators.”

    • Ramaswamy is also calling for dramatically changing the Federal Reserve, by ending the central bank’s dual mandate of keeping inflation low and maintaining full employment. “Limit the U.S. Fed’s scope: stabilize the dollar
      DXY
      & nothing more,” his campaign site says.

    Nikki Haley

    A spokesman for Nikki Haley’s campaign pointed to a Fox Business interview on Wednesday in which she called for ending the federal gas tax and cutting spending, as well as to her speech Friday in New Hampshire on her economic plan.

    Republican presidential candidate Nikki Haley is a former U.S. ambassador to the United Nations and former South Carolina governor.


    Getty Images

    • “We want to eliminate the federal gas tax completely,” Haley told Fox Business. “We have to get more money in our taxpayers’ pockets.” That tax helps pay for highways, but she said the system isn’t working, echoing a point that some policy analysts have previously made. Biden pushed for temporarily suspending the federal gas tax in 2022, but Congress didn’t provide sufficient support for his proposal. In her economic speech, Haley also promised to cut income taxes for working families and make permanent the tax cuts that small businesses scored in 2017’s GOP tax overhaul.

    • The former U.S. ambassador to the United Nations said members of Congress are “spending like drunken sailors,” as she promised to reduce the federal government’s outlays. “I will veto any spending bill that doesn’t take us back to pre-COVID levels,” she told Fox Business, referring to budgets that date to before the onset of the coronavirus pandemic in March 2020.

    • Haley in her speech Friday pledged to support the U.S. energy industry, as she suggested that Washington has been “stifling it.” She said: “We’ll drill so much oil and gas, families will save big on their utility bills.”

    Mike Pence

    A spokesman for Pence’s campaign pointed to the former vice president’s plan for “ending inflation,” which calls for actions such as reducing the federal government’s spending and changing the Federal Reserve’s job description.

    Former Vice President Mike Pence served as governor of Indiana and as a congressman before becoming Donald Trump’s running mate in 2016.


    AP

    • A Pence administration would “end runaway deficits by freezing non-defense spending, eliminating unnecessary government programs, repealing over $3 trillion in new spending under Biden, and reforming mandatory programs that drive our debt,” the plan says. Earlier this year, he urged “commonsense and compassionate” reforms for programs such as Social Security and Medicaid.

    • Pence wants to end the Fed’s dual mandate, which calls for the U.S. central bank to focus on full employment and stable prices. “Trying to serve two, often contradictory goals has led to wild fluctuation in rates,” his plan says, adding that it’s better to “leave employment policy to the president and Congress.”

    • The former vice president’s plan said he aims to bring supply chains and production “back home,” and that would happen by “removing regulatory burdens, enacting pro-growth tax policies, and ensuring access to abundant American energy.” In other words: “We will fight inflation by making America the best place to do business again.”

    • Similar to his 2024 GOP rivals, Pence blasts Biden’s energy policies, though some of the Democratic incumbent’s stances, such as his approval of the Willow drilling project in Alaska, have also been criticized by environmental groups. Pence’s plan says: “It is time to reverse Biden’s attack on American energy by restarting oil and gas leasing on federal lands, opening the Arctic and offshore regions for exploration
      XOP,
      approving safe transportation of oil and gas, mining rare earth minerals, and rejecting climate change hysteria that is causing U.S. energy
      XLE
      production to fall.”

    Chris Christie

    Former New Jersey Gov. Chris Christie addresses a New Hampshire audience in April.


    AP Photo/Charles Krupa

    Chris Christie’s White House campaign didn’t respond to MarketWatch’s requests for comment, but the former New Jersey governor has emphasized that reducing government spending will help tame inflation.

    “The out-of-control government spending has created this inflation,” Christie said in June during a CNN town hall. “I mean, even Larry Summers, who I don’t agree with much on, former Democratic Treasury secretary, warned Joe Biden, ‘Don’t do this spending. It’s going to cause the inflation.’ So, first, we need to bring spending down, and we’ve talked about that before.”

    Related: Larry Summers has a new inflation warning

    Tim Scott

    U.S. Sen. Tim Scott pointed to reducing the federal government’s spending and repealing one of Biden’s signature legislative packages, when asked about how he would address inflation.

    Tim Scott, a U.S. senator from South Carolina, speaks last month during the presidential debate in Milwaukee.


    Getty Images

    • Scott, from South Carolina, said in a statement that he would aim to “snap non-defense discretionary spending back to the pre-COVID 2019 baseline.” He described that as stopping Democrats from “turning the temporary pandemic into permanent socialism.”

    • Scott said he would rescind the Inflation Reduction Act, which is Democrats’ big economic package aimed at addressing climate change, capping drug costs and raising hundreds of billions of dollars through taxes on corporations. “The Inflation Reduction Act actually increased inflation and the only thing it reduced was money in our pockets,” he said in his statement. “Cutting that off and restoring tax cuts and eliminating the tax increases would go a long way to having the kind of stimulative impact in our economy and controlling spending.”

    • Scott called for stronger economic growth. “We have to also grow our economy somewhere near 5% consistently,” he said, adding that could create 10 million jobs. The U.S. economy grew by nearly 6% in 2021 after contracting in 2020 as COVID hit, then it expanded by about 2% in 2022.

    Related: Republican presidential candidate Tim Scott says he wants to put the focus on tax cuts

    Asa Hutchinson

    Former Arkansas Gov. Asa Hutchinson blames “excessive federal spending” for leading to inflation when giving speeches, and outlines a plan for “fiscal responsibility” on his campaign site.

    Asa Hutchinson, governor of Arkansas from 2015 until this year, speaks at an Iowa event in April.


    Scott Olson/Getty Images

    • “Restore discipline by reducing federal government size, cutting spending, balancing the budget, and lowering the deficit to tame inflation,” it states.

    • When Hutchinson was governor, he signed a $500 million tax-cut package, saying “it could not come at a better time with the continued challenge of high food and gas prices.” That was in August 2022. On his campaign website, he repeats a call to cut taxes and “reduce regulations to boost the private sector and enhance wages for American workers.”

    Hutchinson’s campaign did not respond to a request for comment from MarketWatch.  

    Doug Burgum

    North Dakota Gov. Doug Burgum, a GOP presidential hopeful, speaks at the Iowa State Fair in August.


    Brandon Bell/Getty Images

    North Dakota Gov. Doug Burgum’s website says that as president he would “get inflation under control, cut taxes, lower gas prices
    RB00,
    +0.31%    ,
    reduce the cost of living and help people realize their fullest potential.” It doesn’t provide specifics.

    A spokesman for Burgum’s White House campaign didn’t respond to MarketWatch’s requests for comment. A spokesman reportedly told the New York Times that the campaign will roll out its vision and plans on its own timeline.

    Larry Elder

    Larry Elder, a conservative radio host and a gubernatorial candidate in California in the failed 2021 recall of Democratic incumbent Gavin Newsom, said he views energy and tax policy and a constitutional amendment as ways to whip inflation.

    Larry Elder is a conservative radio host and former gubernatorial candidate in California.


    AP

    • “Reverse the war on oil
      CL00,
      +0.93%
      and gas
      NG00,
      -2.65%
      ; permit drilling in Anwar [Arctic National Wildlife Refuge]; authorize the Keystone Pipeline; reverse the Biden restrictions on drilling on federal lands; and encourage nuclear energy
      NLR,
      ” Elder said in a statement.

    • “Encourage an amendment to the Constitution to set spending to a fixed percent of the GDP,” he also said.

    • Elder said the reduction in spending forced by that constitutional amendment would “coincide with a steep reduction in personal and corporate income taxes,” offering further help to Americans with stretched budgets.

    Will Hurd

    2024 Republican presidential hopeful Will Hurd, a former Texas congressman, speaks in Iowa in July.


    AFP via Getty Images

    Former U.S. Rep. Will Hurd of Texas announced his candidacy in June but so far hasn’t made it to the debate stage. In his campaign-launch video, he labeled inflation “still out of control.”

    • In a post on X in June, Hurd called for reining in spending. “You cannot be putting government funds into, at a time where you’re seeing the rising inflation,” he said.

    • And he said tax hikes are a nonstarter when inflation is high. “The worst time to talk about increasing taxes is when everybody’s hurting from inflation.”

    • Hurd also said the deficit should be addressed, to “start bending the curve back on the debt.”

    Hurd’s campaign did not respond to a request for comment from MarketWatch.

    Now read: Republican presidential debate: Candidates could win with a clear economic message about the ‘crisis among working people’

    And see: As Biden joins UAW picket line, poll shows Democrats’ edge over GOP on ‘caring about people like me’ has vanished

    Jeffry Bartash contributed.

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  • When will inflation cool to the Fed’s 2% target? By late next year, says JP Morgan strategist.

    When will inflation cool to the Fed’s 2% target? By late next year, says JP Morgan strategist.

    Inflation is likely to fall below the Federal Reserve’s 2% annual target by late next year, according to David Kelly, chief global strategist at JP Morgan Asset Management.

    Consumer prices rose again in August to reach a 3.7% yearly rate, based on Wednesday’s release of the monthly consumer-price index. That marked its biggest jump in 14 months and a higher reading than the recent 3% low set in June (see chart) as the toll of the Fed’s rate hikes kicked in.

    U.S. consumer prices rose in August, after touching a recent low of 3% yearly in June, as energy prices shot up.


    AllianceBernstein

    The catalyst for increased price pressures in August was a roughly 30% surge in energy prices
    CL00,
    +1.32%
    this quarter, according to Eric Winograd, director of developed market economic research at AllianceBernstein.

    West Texas Intermediate Crude, the U.S. benchmark, settled at $88.52 a barrel on Wednesday, as traders focused on supply concerns following decisions by Saudi Arabia and Russia to cut crude supplies through year-end. WTI was trading at a low for the year below $65 a barrel in May.

    “I don’t think that today’s upside surprise is sufficient to trigger a rate hike next week and I continue to expect the Fed to stay on hold,” Winograd said, in emailed commentary. “But with inflation sticky and growth resilient, the committee is likely to maintain a clear tightening bias—the dot plot may even continue to reflect expectations of an additional hike later this year.”

    Federal Reserve officials increased the central bank’s policy rate to a 5.25%-5.5% range in July, the highest in 22 years.

    Higher gasoline prices, however, also could act as a counterweight to inflation, according to JP Morgan’s Kelly. “Indeed, to the extent that higher gasoline prices cool other consumer spending, the recent energy price surge could contribute to slower growth and lower inflation entering 2024,” Kelly wrote in a Wednesday client note. 

    “We still believe that, barring some further shock, year-over-year headline consumption deflator inflation will be below the Fed’s 2% target by the fourth quarter of 2024.”

    Kelly isn’t expecting the Fed to raise rates again in this cycle.

    U.S. stocks ended mixed Wednesday following the CPI update, with the Dow Jones Industrial Average
    DJIA
    down 0.2%, the S&P 500 index
    SPX
    up 0.1% and the Nasdaq Composite Index
    COMP
    up 0.3%, according to FactSet.

    But with oil prices well off their lows for 2023, Winograd said further progress on cooling headline inflation is unlikely this year, even though he expects core inflation to gradually decelerate, a process that will “keep the Fed on high alert.”

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  • Wall Street’s most bullish strategist warns of choppiness in stocks, still sees the S&P 500 touching a record high this year

    Wall Street’s most bullish strategist warns of choppiness in stocks, still sees the S&P 500 touching a record high this year

    Recent weakness in the U.S. stock market is likely to persist over the near-term, according to Wall Street’s most bullish strategist, who still thinks the S&P 500 is on a path to a record high this year.

    John Stoltzfus, chief investment strategist at Oppenheimer Asset Management Inc., in late July projected the S&P 500 would rise above 4,900 by the end of 2023. That is the highest price target for the large-cap index among 20 Wall Street firms surveyed by MarketWatch in August.

    It implies the S&P 500 would rise above its earlier closing record high of 4,796 reached on Jan. 3, 2022 by the end of the year. The path up, however, could get bumpy.

    “Bullishness [in the stock market] is relatively high while the Fed remains shy of its inflation target,” said a team of Oppenheimer strategists led by Stoltzfus in a Sunday note. They also said, “we persist in suggesting that investors curb their enthusiasm [in the stock market] for a long rate pause or even a rate cut and instead right-size expectations.”

    Expectations that the Federal Reserve is nearing an end to its current interest-rate hiking cycle, as well as optimism around artificial intelligence boosted the U.S. stock market in the first seven months of 2023. However, the rally came to a brief halt in August as investors worried the Fed could be forced to keep rates elevated as a batch of stronger-than-expected economic data and rising oil prices fueled concerns that still-sticky inflation would mean that borrowing costs will stay higher for longer.

    Investors should not brush off those pressures, even through the Fed appears to be nearing the end to its current rate-hike cycle, Stoltzfus and his team said. “The stickiness evidenced in food, services, energy and other prices warrants the Fed remaining vigilant along with a potential for one more hike this year and perhaps another next year,” they said.

    See: When will consumers stop buying more stuff? It’s a key question for the stock market.

    However, Stoltzfus doesn’t see current headwinds for stocks as something that would prevent the S&P 500 from achieving his team’s new peak target.

    Stock-market investors expect this week’s August inflation report to offer more clarity on whether the central bank will continue to ratchet up its fight against inflation. The headline component of the consumer-price index is forecast to accelerate to 0.6% in August from July’s 0.2% gain, while the core measure that strips out volatile food and fuel costs is expected to rise a mild 0.2% from a month earlier, according to a survey of economists by The Wall Street Journal. 

    Meanwhile, a key Wall Street volatility index also pointed to “some choppiness” in the stock market in the near term to keep investors on their toes, said Stoltzfus. The CBOE Volatility Index
    VIX,
    at a level of 13.82 on Monday, hovered around its 12-month low and traded about 30% below its one-year average level of 19.9, and 37% below its two-year average of 21.88 (see chart below). 

    Stoltzfus and his team suggest that investors use market weakness to seek out “babies that get thrown out with the bath water” in periods of volatility. They said the S&P 500 Energy Sector
    XX:SP500.10
    looks increasingly attractive as policy makers in the U.S. and abroad strive to contain inflation and manage economic growth. 

    “We believe that prospects are looking better that the Fed’s success thus far in bringing down the rate of inflation could lead to a [rate] pause next year, thus lessening pressures on economic growth,” the strategists said. An improved economic growth, along with fiscal stimulus from investment in stateside infrastructure projects and stateside chip manufacturing efforts, could contribute to profitability in the energy sector into 2024, the team added. 

    The Energy Select Sector SPDR Fund
    XLE,
    which is seen as a proxy of the energy sector of the S&P 500, has advanced 3.9% year to date versus a 8.5% increase in the price of the U.S. benchmark West Texas Intermediate crude oil
    CL00,
    +0.03%

    CL.1,
    +0.03%    ,
    according to FactSet data.

    Oil futures
    CLV23,
    +0.03%
    BRNX23,
    -0.03%
    traded at their highest levels of the year on Monday morning, a week after Russia and Saudi Arabia caught markets off guard with their output cut extension announcements, but they settled modestly lower on Monday afternoon.

    See: Energy ETFs are outshining the S&P 500, but it’s not just because of the oil rally

    Stoltzfus in late July projected the S&P 500
    SPX
    would rise above its record high by the end of 2023, lifting his year-end price target for the large-cap index to 4,900 from an earlier 4,400 projection from December. It implies a 9.2% advance from where the S&P 500 settled on Monday, at around 4,487.

    See: S&P 500 has a new record high 2023 price target. Here’s a look at Wall Street’s official stock-market outlook.

    U.S. stocks finished higher on Monday, boosted by technology shares as Nasdaq Composite
    COMP
    advanced 1.1%. The S&P 500 was up 0.7% and the Dow Jones Industrial Average
    DJIA
    ended 0.3% higher, according to FactSet data. 

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  • Why crude-oil rally can’t be ignored by investors — or the Fed

    Why crude-oil rally can’t be ignored by investors — or the Fed

    Central bankers like to focus on core inflation readings, which strip out food and energy prices, but that doesn’t mean that they, or investors, will be able to ignore a renewed surge in crude-oil prices.

    In a Thursday note, DataTrek Research observed that the correlation between energy prices and the core reading of the consumer-price index has returned to levels seen in the 1970s and 1980s. It stands at 0.62 since 2020, compared with an average of 0.68 in those prior decades, and well above its long-run average of 0.31. A reading of 1.0 would mean the measures were moving in perfect lockstep. (See table below.)


    DataTrek Research

    Core measures of inflation typically strip out volatile items like food and energy. While that often leads to eye-rolling by commentators who note that food and energy make up a big chunk of what consumers spend money on, the logic behind the move holds that such items are less responsive to monetary policy.

    Policy makers put more emphasis on the core reading for a better read on what they can influence. The core personal-consumption expenditures, or PCE, index, for example, is often described as the Federal Reserve’s favored inflation indicator.

    But that doesn’t mean rising energy or food prices can be ignored. Energy, after all, is an input, and can have an influence on overall prices.

    “Recent data says energy prices hold more sway on core inflation than any time since the 1970s/1980s, so rising oil prices are a legitimate concern for both the Fed and capital markets. Food inflation fits the same bill,” said DataTrek co-founder Nicholas Colas in the note.

    Oil prices have been on a tear this summer, with the rally accelerating after Saudi Arabia announced earlier this week it would extend a production cut of 1 million barrels a day through the end of the year, with Russia also pledging to extend a supply cut.

    West Texas Intermediate crude
    CL00,
    +0.48%    ,
    the U.S. benchmark, extended a winning streak to nine days on Wednesday, while Brent crude
    BRN00,
    +0.60%    ,
    the global benchmark, rose for a seventh straight day. Both grades ended at 2023 highs Wednesday before pulling back modestly in the Thursday session.

    The surge in crude threatens to further drive up fuel prices, including gasoline and diesel.

    And rising oil prices this week got a chunk of the blame from investors and analysts for a pickup in Treasury yields as market participants began to pencil in a longer stretch of higher interest rates — or weighed the possibility the Fed may need to deliver more monetary tightening. That’s also contributed to a rise in the U.S. dollar, with the ICE U.S. Dollar Index
    DXY,
    a measure of the currency against a basket of six major rivals, hitting a six-month high.

    U.S. stocks have weakened in the face of rising yields, with technology and growth shares, which are particularly rate-sensitive, leading the way lower. The Nasdaq Composite
    COMP
    was on track for a 2% decline so far this holiday-shortened week, while the S&P 500
    SPX
    has pulled back 1.4% and the Dow Jones Industrial Average
    DJIA
    has lost 1%.

    “With oil prices rising again, we got to wondering about the spillover effects of this move on inflation. Will pricier crude derail recent disinflationary trends?” Colas wrote.

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  • U.S. oil prices score longest streak of daily gains in over 4 years

    U.S. oil prices score longest streak of daily gains in over 4 years

    Oil futures settled higher on Wednesday, with U.S. prices posting a ninth consecutive climb — the longest streak of daily gains since early 2019.

    Prices for U.S. and global benchmark crude futures marked fresh settlement highs for the year so far, following the recent extension of supply cuts by Saudi Arabia and Russia.

    Price action

    Market drivers

    “Saudi…

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  • Dow closes down 200 points as bond yields, oil prices jump

    Dow closes down 200 points as bond yields, oil prices jump

    U.S. stocks closed lower Tuesday after the long Labor Day weekend, as bond yields and oil prices climbed. The Dow Jones Industrial Average DJIA shed about 195 points, or 0.6%, ending near 34,642, according to preliminary FactSet data. The S&P 500 index SPX dropped about 0.4% and the Nasdaq Composite Index COMP fell 0.1%. Investors returned from the long weekend in a less bullish mood on weaker economic data from China and Europe, but also with more clouds on the horizon in oil markets. Oil prices CL00 closed at the highest level since November on Tuesday, after Saudi Arabia and Russia opted to extend oil supply production…

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  • The ‘narrow breadth’ chorus has fallen silent. What broadening participation in stock-market rally means for investors.

    The ‘narrow breadth’ chorus has fallen silent. What broadening participation in stock-market rally means for investors.

    A wider swath of stocks have joined the S&P 500
    SPX,
    +0.15%    ’s
    upswing after the so-called Magnificent Seven — Apple
    AAPL,
    +0.32%    ,
    Amazon
    AMZN,
    +1.11%    ,
    Alphabet
    GOOG,
    +0.08%    ,
    Microsoft
    MSFT,
    -0.72%    ,
    Meta
    META,
    -2.11%    ,
    Nvidia
    NVDA,
    -0.04%
    and Tesla
    TSLA,
    +0.37%
    — single-handedly propelled the large-cap index into a bull market in early June, with the gauge now up more than 28% from its low notched last October and rising to new highs since April 2022, according to Dow Jones Market Data. 

    Hopes that the U.S. economy could pull off a soft landing and avoid a recession despite the Federal Reserve’s aggressive interest-rate hikes, as well as receding inflation pressures and expectations for the end of the Fed’s monetary tightening campaign, have underpinned a notable expansion in market breadth over the past two months, according Adam Turnquist, chief technical strategist at LPL Financial. 

    The S&P 500 Equal Weighted Index
    SP500EW,
    +0.27%    ,
    which lagged behind the market-cap-weighted S&P 500 index for most of the year, has now kicked back into gear and staged an impressive comeback in July. The equal-weighted index and the S&P 500 each advanced 3.1% this month, according to FactSet data. 

    The equal weighting eliminates the distortion of the megacap components and significantly changes several sector weightings in the S&P 500, including technology, which drops from around 29% on the SPX to only 13% on the equal-weighted index, said Turnquist in a Friday note. Meanwhile, the industrials sector has the biggest increase in weight, jumping from 9% on the SPX to 16% on the equal-weighted index.

    Another way to quantify and compare market breadth is to look at the percentage of stocks on an index trading above their longer-term 200-day moving average (dma), Turnquist said. In general, if a stock is trading above its 200 dma, it is considered to be in an uptrend, and if the price is below the 200 dma, it is considered in a downtrend. Furthermore, a higher percentage of stocks above their 200 dma implies buying pressure is more widespread — suggesting the market’s advance is likely sustainable.

    The chart below shows that 73% of stocks within the S&P 500 are trading above their 200 dma as of July 27, which compares to only 48% at the end of 2022. Moreover, the composition of breadth leadership has turned increasingly bullish. The highest sector readings include technology, industrials, energy, and consumer discretionary.

    “So not only is breadth on the index robust, but cyclical stocks are also leading,” said Turnquist. 

    SOURCE: LPL RESEARCH, BLOOMBERG

    Wall Street often views broadening participation in the stock-market rally as a measure of health and a constructive sign of the sustainability of the bull market. 

    Jimmy Lee, founder and chief executive officer of The Wealth Consulting Group said he is seeing “a lot of money” flowing into areas that are not the Magnificent Seven such as stocks in the industrials, financials, materials, energy and even real-estate sectors.

    The S&P 500’s industrials sector
    SP500.20,
    +0.23%
    climbed 2.9% in July, while the financials sector
    SP500.40,
    +0.44%
    advanced over 4.7% this month. The S&P 500’s energy sector
    SP500.10,
    +2.00%    ,
    which had been the biggest laggard when the rest of the markets exited the bear market in June, jumped 7.3% month to date after the U.S. oil benchmark
    CL.1,
    -0.20%

    CL00,
    -0.20%
    closed above $80 a barrel for the first time since April. 

    Meanwhile, the tech-heavy S&P 500’s communication-services sector
    SP500.50,
    -0.03%
    rose 6.7% in July, while the consumer-discretionary sector
    SP500.25,
    +0.56%
    gained 2.4% and the information-technology sector
    SP500.45,
    +0.13%
    was up 2.6%, according to FactSet data. 

    See: Stocks are on a seemingly unstoppable hot streak, but this bond-market ‘tipping point’ could see it end in a hurry

    Stephen Hoedt, managing director of equity and fixed income research at Key Private Bank, told MarketWatch in an interview that he doesn’t see “any reason to get bearish here with the fundamentals that are underlying,” which gives investors reason to rotate toward the more cyclical areas such as energy, financials and industrials, while broadening the market away from just being concentrated in the megacap technology names. 

    “The growth has been a surprise this year for everyone, so that’s what the market got wrong coming into this year. When I look at growth, nominal GDP growth translates directly into earnings and we’ve seen earnings continue to surprise on the upside,” Hoedt said. 

    Hoedt pointed to the direction of the 12-month forward earnings estimate for the S&P 500 as an important indicator. “As long as the direction of the 12-month forward earnings number for the S&P 500 is going up, it’s really, really difficult to be bearish on the stock market,” he said. “It seems to me that we may start to see another inflection higher in forward earnings revisions that take into account this stronger growth environment that we’re in.” 

    However, the broadening of the stock-market rally and the bullish sentiment were also driving some on Wall Street to believe stocks are overbought and due for a correction. 

    Lee said there’s still too much pessimism out there and too much concern that some investors haven’t chased the market yet. “In the second half of this year, when the Fed does stop raising rates and if the economy stays out of recession, you can see major money — trillions of dollars moving from the money market into equities and other risk assets,” he told MarketWatch in a phone interview on Friday.

    “When that happens, it’s probably going to push valuations even further. So I would imagine when that happens is when you can expect more of a correction to occur, but I think that we still have more room to go before that happens.” 

    U.S. stocks ended higher on Monday, finishing up July on a positive note. Three major stock indexes rallied this month, with the S&P 500 up 3.1% and booking its fifth monthly gain. The tech-heavy Nasdaq Composite
    COMP,
    +0.21%
    gained 4.1% month to date, while the Dow Jones Industrial Average
    DJIA,
    +0.28%
    advanced 3.4%, according to Dow Jones Market Data. 

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  • Puzzled by the stock-market surge? Overshoots are the new normal, Bank of America strategist says

    Puzzled by the stock-market surge? Overshoots are the new normal, Bank of America strategist says

    Stocks have surged this year without really anything going right, besides the rolling out of error-prone artificial intellligence chatbots. Interest rates have surged to a 22-year high, earnings are down from last year, and pandemic-era savings are being drawn down if not entirely exhausted.

    Read more: Those extra pandemic savings are now wiped out, Fed study finds.

    Strategists at Bank of America led by Michael Hartnett have an interesting theory.

    “Asset price overshoots [are] the new normal,” they say.

    Consider:

    • Oil
      CL00,
      -0.37%
      went from -$37 in April 2020 to $123 in March 2022, then down to $67 the following 12 months.

    • Bitcoin
      BTCUSD,
      +0.32%
      went from $5,000 in January 2020 to $68,000 in November 2021, down to $16,000 a year later, and up to $29,000 now.

    • The S&P 500 went from 3300 to 2200 to 4800 to 3500 to 4600 thus far in 2020s.

    “AI is simply the new overshoot,” they say.

    The S&P 500
    SPX,
    +0.67%
    has gained 18% this year as the Nasdaq Composite
    COMP,
    +1.53%
    has rallied by 34%.

    Hartnett and team noted that real retail sales — that is, adjusted for inflation — fell at a 1.6% year-over-year clip, which has coincided with recessions since 1967. Real retail sales falls in excess of 3% are associated with hard recessions.

    Historically, a 2-3 point rise in the savings rate also is recessionary, and already it’s risen from 3% to 4.6%. The unemployment rate so far hasn’t risen, though a 0.5 point to 1 point rise in the jobless rate also is typically recessionary.

    “It would be so ‘2020s’ for the economy to hit a brick wall just as everyone punts ‘soft landing’ into 2024,” they say.

    They like emerging market/commodities as summer upside plays and credit and tech as autumn downside plays.

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