Global Stocks Rise as Oil Prices Fall Ahead of Federal Reserve Meeting

SadaNews - Global stocks extended their rise to the third day, with investors overcoming short-term geopolitical tensions and looking for signs of stability, despite the ongoing Iran war disrupting energy markets and raising inflation fears. Oil prices fell.

The MSCI All Country World Index, the broadest measure of global stocks, rose by 0.3%, marking its longest winning streak in over a month. Asian stocks advanced by 1.6%, led by memory chip stocks like Samsung Electronics, which are seen as less exposed to the conflict in the Middle East.

Futures contracts for U.S. and European stock indices also climbed, indicating that gains may extend to other regions. These moves reflect cautious optimism despite no signs of de-escalation in the Middle East conflict.

Support for sentiment came from a 2% drop in Brent crude, trading at about $101 per barrel. Oil prices fell after Iraq reached an agreement to resume exports through Turkey, avoiding the Strait of Hormuz, while the U.S. intensified efforts to enforce the reopening of this major waterway.

Markets Struggle to Maintain Stability Amid Energy Shock

The near-total closure of the Strait of Hormuz has unsettled energy markets, with the shock extending to stocks and bonds, amid fears that rising oil prices could fuel inflation.

How policymakers respond to these developments is front and center for investors, especially with the Federal Reserve's interest rate decision due later on Wednesday.

Fouad Razakzadeh at Forex.com said, "There is a growing sense that markets are trying to look beyond current tensions." He added, "However, the markets are not getting carried away by these tensions. If the conflict drags on, the danger is that it will begin to exert more pressure on stock markets once again."

 

Geopolitical Developments

In geopolitical developments, President Donald Trump has abandoned efforts to rally allies for the war, chiding those allies who publicly rejected his calls, while reiterating that the conflict will end soon.

Hitoshi Asaoka, chief strategist at Asset Management One, noted Trump's comment that he does not need cooperation from NATO or other countries "effectively reassured markets that the situation may not escalate into an all-out war."

However, the U.S. and Israel continue their strikes amid a lack of clarity on when operations might end, with Israel claiming to have killed Iranian security chief Ali Larijani in an overnight operation.

Trump also threatened to expand strikes to include Qeshm Island, a major oil export center in Iran, while Gulf countries continued to fend off drone and missile attacks from Iran.

Bets on Market Stability Despite Volatility

Veteran strategist Louis Navellier said, "Investors should expect continued volatility until energy situations stabilize." He added that U.S. stock gains despite rising oil prices reflect expectations for strong earnings and economic growth.

In other market aspects, the dollar index saw little change, and Treasury bonds rose, with the yield on benchmark 10-year notes declining by two basis points to 4.18%. In commodities, gold edged slightly lower, trading near $5000 per ounce.

Macroeconomic analyst Brendan Fagan at Bloomberg pointed out that "stability in oil prices supports demand for Treasury bonds, but in the absence of a sustained decline in price pressures, markets remain driven more by political tensions than monetary policy."

Awaiting Federal Reserve Decision

Attention will shift later on Wednesday to the Federal Reserve, which is widely expected to keep interest rates unchanged, with focus turning to how it will respond if the fallout from the war pushes its policy objectives in conflicting directions.

Bond traders are dialing back some strong bets that had pushed markets to price out a rate cut this year.

While no change is expected on Wednesday, policymakers will set their expectations for the path of interest rates in the upcoming months. Traders will scrutinize Federal Reserve Chair Jerome Powell's press conference for insights on the central bank's views on rising energy prices against signs of weakness in the labor market.

Market analyst Tony Sycamore at IG Australia wrote in a note: "If the conflict lingers and pushes energy prices, and thus inflation, higher, it will further bolster the strength of the U.S. dollar and reduce the chances of easing from the Fed."