Stocks Rise for Third Day as Oil Extends Decline: Markets Wrap

Stocks rise anew. Photo by Michael Nagle /Photographer: Michael Nagle/Bloo

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(Bloomberg) — A rally in global stocks extended into a third day, as investors looked past near-term geopolitical tensions and sought signs of stability even as the war in Iran continued to roil energy markets and fuel inflation concerns. Oil dropped.

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The MSCI All Country World Index — the broadest measure of global equities — rose 0.3%, in its longest winning streak in more than a month. Asian shares rose 1.6%, led by memory-chip stocks such as Samsung Electronics Co., which are seen as less exposed to the war in the Middle East.

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Equity-index futures for the US and Europe rose, signaling the gains may extend to other regions. The moves reflect cautious optimism even as the conflict in the Middle East shows no signs of easing.

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Supporting sentiment was a 2% drop in Brent crude, which traded just around $101 a barrel. Oil dipped as Iraq signed a deal to resume exports via Turkey that avoids the Strait of Hormuz, and as the US stepped up efforts to force the reopening of the key waterway.

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The war in Iran and the near shutdown of the vital Strait of Hormuz have rattled energy markets, with the shock reverberating across stocks and bonds amid concern that surging oil prices will stoke inflation. How policymakers respond to that is now top of mind for investors, with the Federal Reserve set to deliver its interest-rate decision later Wednesday.

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“There is a growing sense that markets are trying to look through the current tensions,” said Fawad Razaqzada at Forex.com. “Still, markets aren’t getting carried away. If the conflict drags on, the risk is that it starts to weigh more heavily on stock markets again.”

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In geopolitical news, US President Donald Trump abandoned his effort to recruit partners for the war with Iran and scolded allies who openly rejected his appeals, even as he repeated claims the conflict would end soon.

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Trump’s comment that he does not need cooperation from NATO or other countries “actually reassured markets in the sense that the situation may not escalate into a full-scale war,” said Hitoshi Asaoka, a chief strategist at Asset Management One.

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The US and Israel nonetheless kept up their attacks with little clarity on when operations would end, with Israel saying it had killed Iran’s security chief, Ali Larijani, in an overnight operation. Trump threatened to expand strikes on Kharg Island, Iran’s main export hub, while Gulf countries continued to face attacks from Iran-sent drones.

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“Investors should expect continued volatility until the energy situation stabilizes,” said veteran strategist Louis Navellier. Gains for US stocks despite higher oil prices reflect expectations for solid earnings and economic growth, he said.

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In other corners of the market, a gauge of the dollar treaded water as investors awaited the Fed’s decision. Treasuries rose, with the yield on the benchmark 10-year dropping two basis points to 4.18%. In commodities, gold edged lower to trade around $5,000 an ounce.