Wall Street shares fell but the dollar held firm yesterday, after data showed US inflation picked up as expected in February, although most investor focus was squarely on the oil price and on the chances that the US-Israeli war on Iran could have a longer-term impact on economic growth.
Data from the Labour Department showed the consumer price index rose 0.3 per cent in February, in line with forecasts and above January’s 0.2pc increase. CPI rose 2.4pc in the year to February, also matching expectations, while the core rate, which excludes food and energy prices, rose 2.5pc, in line with forecasts.
On Wall Street, the Dow Jones Industrial Average fell about 0.9pc, the S&P 500 dropped 0.3pc, and the Nasdaq Composite dipped 0.1pc.
The consumer price report does not capture the steep rise in items such as petrol since the outbreak of war in the Middle East 12 days ago. Markets already show traders believe there is a rising chance that most central banks’ next move with interest rates will be to hike.
“February’s inflation numbers were heading in the right direction, but then along came the conflict in the Middle East and now the path is changing. Instead of deflation from energy, we will get inflation. Food prices could show signs of inflation acceleration as the fertiliser market is in chaos,” Annex Wealth Management chief economist Brian Jacobsen said.
Oil had another volatile day, although price movement was muted compared to the record price swings of Monday’s session. The International Energy Agency will recommend the release of 400 million barrels of oil, the largest amount in IEA history, three sources said yesterday, to rein in soaring prices. Japan and Germany said they would start releasing some reserves.
Brent crude futures were last up around 4pc at $91 a barrel, having risen earlier by as much as 6pc to almost $93. The MSCI All-World index fell 0.3pc and European shares slid, leaving the STOXX 600 down 0.77pc. MSCI’s broadest index of Asia-Pacific shares outside Japan closed higher by 1pc. Investors remain on edge as the Middle East conflict threatens to freeze global energy trade and ignite a price shock – a risk that world leaders are scrambling to address.
The immediate concern is when the Strait of Hormuz, a critical artery for 20pc of global fuel supply, will again be safe for traffic as threats to vessels have deterred ships from entering it since the outbreak of the US-Israeli war on Iran.
European Central Bank President Christine Lagarde said on Tuesday the ECB would do everything to keep inflation under control to avoid a repeat of the 2022 energy price shock. Several ECB officials favour a wait-and-see approach before taking action. The euro fell around 0.3pc to $1.157, while the pound was little changed on the day at $1.341. The yen weakened further, leaving the dollar up 0.4pc at 158.68.
The surge in bond yields this week, due to fears of sustained energy-price pressures, has added to concerns over other market segments being at risk of overheating, such as private credit and the vast investments in AI projects.
Investors were also reminded of vulnerabilities within private credit after a person close to JPMorgan Chase said yesterday the bank had marked down the value of some loans held by private-credit groups and was tightening lending to the sector.
Concerns about deteriorating credit quality, especially regarding an AI-led disruption in the software sector, have triggered investor withdrawals from private credit vehicles, including BlackRock’s $26 billion HPS Corporate Lending Fund.
US Treasuries fell again yesterday, pushing the yield on the benchmark 10-year note up 6.4 basis points to 4.136pc.
Meanwhile, Bahrain All Share Index closed at 1,953.09 points yesterday, marking an increase of 1.99 points above the previous closing.
This increase was due to a rise in the consumer discretionary sector, the financial sector, and the real estate sector.
Bahrain Islamic Index closed at 982.00 points, marking an increase of 9.80 points above the previous closing.
Results indicated that 172 equity transactions took place with a volume of 1,731,471, worth BD368,653.
Investors traded mainly in the financial sector, representing 53.40pc of the total value of securities traded.
Most Gulf equities erased early advances to finish lower yesterday, led by a sharp decline in Dubai, as investors stayed cautious over inflation and growth risks stemming from the US-Israeli war against Iran.
Dubai’s main index dropped 2.4pc, hit by a 4.7pc slide in blue-chip developer Emaar Properties and a 4.9pc decline in top lender Emirates NBD.
However, Air Arabia ended 0.7pc higher. The budget airline was set to snap a five-session decline, having lost more than 20pc in the preceding five trading days.
In Abu Dhabi, the index fell 0.3pc. Investors are likely to stay highly sensitive to fresh headlines and regional developments, while swings in oil prices and logistical disruptions may continue to pose risks for some markets to varying degrees, said Daniel Takieddine, co-founder and CEO of Sky Links Capital Group.
Saudi Arabia’s benchmark index was up 0.1pc, helped by a 1pc rise in oil major Saudi Aramco.
The Qatari index dropped 0.9pc, hit by a 2.1pc decline in Qatar National Bank, the Gulf’s biggest lender by assets.
Elsewhere, Oman’s index fell 0.5pc, though it remains up more than 31pc for the year.
The Muscat market saw selective buying, allowing the index to break resistance and stay above 7,700, Assiri said.
Outside the Gulf, Egypt’s blue-chip index fell 1.2pc.
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