Oil Holds Gains, Asian Stocks Set for Muted Open: Markets Wrap

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(Bloomberg) — Oil held onto a rally as hopes faded for a deal to reopen the Strait of Hormuz, while Asian stocks were set for a muted start ahead of key US inflation reports.

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US crude was steady near $82 a barrel in early trading after gaining about 9% over the previous three sessions. Equity futures indicated a flat open for Sydney and Hong Kong benchmarks, while Tokyo is closed for a holiday. S&P 500 contracts were steady after the benchmark closed little changed on Monday.

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President Donald Trump lashed out against Iran’s demands for compensation as part of talks to wind down the conflict, dimming hopes of a quick agreement that would reopen the strait. Trump had signaled on Sunday that he was prepared to let economic pressure on Iran build, rather than launch fresh strikes. Higher energy costs spurred by the Middle East war are stoking concerns the Federal Reserve will have to raise rates this year despite a labor-market slowdown. 

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“The failure of the governments to hold talks is worrying Wall Street participants, who had thought last week that the path to an agreement was increasingly narrow,” said Jose Torres at Interactive Brokers.

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While stocks had seen a burst of enthusiasm about a possible reopening of Hormuz, markets may be less likely to respond positively to vague reports about progress in talks, said Chris Larkin at E*Trade from Morgan Stanley.

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“The jobs report may have eased some anxieties about a Fed rate hike next month, but those concerns could hit new highs without cooler-than-expected inflation numbers this week,” he added.

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The closely watched consumer price index is seen rising 0.1% in July following a 0.4% decline in the prior month, based on the median projection in a Bloomberg survey of economists ahead of Wednesday’s Bureau of Labor Statistics release.

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Fed Bank of Cleveland President Beth Hammack told Yahoo Finance it’s possible that a number of rate hikes may be needed to bring inflation down to the target, but she doesn’t want to prejudge what the end point will be.

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Elsewhere, the yen was steady after tumbling 1% on Monday, wiping out some of the gains triggered when authorities from the US and Japan intervened to support the currency. Meanwhile, Australia’s central bank is poised to keep interest rates unchanged for a second meeting later on Tuesday.

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What Bloomberg Strategists say…

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“Macro data are set to regain control of the equity narrative. That puts added weight on the inflation report, which could go a long way toward cementing expectations for the September FOMC meeting.”

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—Tatiana Darie, Macro Strategist, Markets Live. For the full analysis, click here.

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Some of the main moves in markets:

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Stocks

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Currencies

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Cryptocurrencies

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Bonds

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Commodities

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This story was produced with the assistance of Bloomberg Automation.

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