Oil prices climbed 6% on Monday, while global stocks slipped after Iran intensified its military campaign, hitting several vessels in the Strait of Hormuz and setting a United Arab Emirates (UAE) oil port on fire.
Brent crude rose $6.27, or 5.8%, to settle at $114.44 a barrel, while West Texas Intermediate gained $4.48, or 4.4%, to close at $106.42.
The moves followed a weekend pledge by President Donald Trump that the US Navy would force the strait open, triggering the biggest escalation since a ceasefire was declared four weeks ago.
The Strait of Hormuz, through which around a fifth of the world’s seaborne oil and gas flows, has been severely disrupted for the past two months.
Stocks fell across the board. The Dow Jones Industrial Average dropped 1.13%, the S&P 500 slipped 0.41%, and the Nasdaq Composite declined 0.19%.
“The longer oil prices stay above $100 a barrel, the more the fiscal stimulus from the 2025 tax cuts shifts from being a boost to acting as a shock absorber,” said Brock Weimer, investment strategy analyst at Edward Jones.
Global equities also edged lower, with a broad index of shares outside Japan down 0.22%.
In Europe, markets were weighed down by German carmakers after Trump said he would raise tariffs on European cars and trucks.
The pan-European STOXX 600 index fell 0.99%, while Germany’s 10-year bond yield rose 5 basis points to 3.08%. Markets in London were closed for a public holiday.
Central banks turn hawkish as oil fuels inflation concerns
Rising oil prices pushed bond yields higher and clouded the outlook for global monetary policy.
Markets no longer expect the Federal Reserve to cut interest rates this year, and are beginning to price in possible rate hikes from the European Central Bank and the Bank of England.
Barclays joined other brokerages in forecasting no policy easing by the Fed this year. Friday’s April payrolls report could further shift expectations.
The yield on benchmark 10-year US Treasury notes rose 6 basis points to 4.438%.
Yen volatility unsettles currency markets
Currency markets remained volatile, with traders watching closely for signs of Japanese intervention to support the yen.
The dollar fell sharply against the yen in Asian trading before reversing. The yen was last down 0.04% at 157.12 per dollar.
Analysts estimate Tokyo may have intervened last week with around $35 billion.
“The case for intervention is strong, given the inflationary impact of a weaker yen via import prices, a US administration broadly comfortable with such action, and Japan’s ample foreign exchange reserves,” said Roberto Cobo Garcia, head of G10 FX strategy at BBVA.
The euro fell 0.24% to $1.1692, while sterling weakened 0.29% to $1.3532. The dollar index rose 0.28% to 98.44.
In commodities, spot gold dropped 2.13% to $4,515.27 an ounce.
