ASX set to rise on RBA day as falling oil prices boost Wall Street

Oil prices are down, and stocks are up, though such moves have been quick to reverse since the war in Iran began.

The S&P 500 jumped 1 per cent and was on track for its best day in five weeks. The Dow Jones was up 379 points, or 0.8 per cent, and the Nasdaq composite was 1.3 per cent higher.

The Australian sharemarket is set to advance, with futures at 4.49am AEDT pointing to a rise of 35 points, or 0.4 per cent, at the open. The ASX retreated 0.4 per cent on Monday. The Reserve Bank will announce its interest rate decision this afternoon, with money markets pricing in a likely rate increase and many economists tipping a rise. The Australian dollar was stronger at US70.57¢ at 5.03am AEDT.

The driver for markets once again was the price of oil. A barrel of benchmark US crude fell 3.4 per cent to $US95.36, easing some pressure off the economy after topping $US102 earlier in the morning. Brent crude, the international standard, fell 0.9 per cent to $US102.20 per barrel after earlier getting as high as $US106.50.

It’s a reprieve, for now at least, after oil prices spiked from roughly $US70 before the United States and Israel began their attacks on Iran. In response, Iran has nearly halted traffic through the narrow Strait of Hormuz, where a fifth of the world’s oil typically sails from the Persian Gulf to customers worldwide. That has oil producers cutting production because their crude has nowhere to go.

The worry in financial markets is that if the strait remains closed for a long time, it could keep enough oil off the market to drive inflation up to a debilitating level for the global economy.

President Donald Trump over the weekend demanded that other countries hurt by the closure of the Strait of Hormuz “take care of that passage” and said his country “will help – A LOT!”

European countries, meanwhile, want to know more about Trump’s plans for the war on Iran and when the conflict might end as they weighed his demand.

The US stock market has a track record of bouncing back relatively quickly from military conflicts in the Middle East and elsewhere, as long as oil prices don’t stay too high for too long. Many professional investors are still expecting that to be the case again, which has helped keep US stock prices near their record levels.

For all its dramatic swings, including several over the last two weeks that struck hour to hour, the S&P 500 is still only about 4 per cent below its all-time high.

Escalations have been mounting quickly in the war, to be sure, but that could suggest “both sides are facing growing constraints that may prevent a long conflict,” according to Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute.

On Wall Street, stocks of companies with big fuel bills helped lead the market thanks to falling oil prices. Norwegian Cruise Line Holdings steamed 4.6 per cent higher, while United Airlines climbed 3.1 per cent to trim their sharp losses for the year so far.

National Storage Affiliates leaped 29.4 per cent after Public Storage said it would buy its 69 million rentable square feet in an all-stock deal valuing it at $US10.5 billion. Public Storage fell 2.2 per cent.

Dollar Tree rose 7.3 per cent after reporting a stronger profit for the latest quarter than analysts expected, even as fewer shoppers visited its stores.

Nebius Group, a Dutch AI cloud company, saw its stock that trades in the United States leap 15.3 per cent after announcing a five-year infrastructure contract with Meta Platforms that could be worth up to $US27 billion. Shares in Meta rose 1.9 per cent.

Nvidia, whose AI chips are powering much of the world’s move into artificial-intelligence technology rose 2.5 per cent and was the strongest single force lifting the S&P 500. Nvidia’s CEO, Jensen Huang, is set to give a speech in the afternoon where he could announce new products.

In stock markets abroad, indexes rose in Europe, including a 0.5 per cent return for Germany’s DAX, following a mixed finish in Asia.

Stocks jumped 1.4 per cent in Hong Kong but slipped 0.3 per cent in Shanghai.

In the bond market, Treasury yields eased as falling oil prices took some pressure off inflation worries. A report showing a weakening of manufacturing activity in New York state also weighed on yields.

The yield on the 10-year Treasury fell to 4.24 per cent from 4.28 per cent late Friday.

Yields, though, are still higher than they were before the war, when the 10-year Treasury yield was at just 3.97 per cent. Traders have pushed back their expectations for when the Federal Reserve could resume its cuts to interest rates because of the spike in oil prices caused by the war.

Such cuts would give the economy and job market a boost, and they’re something Trump has angrily been calling for, but they would worsen inflation. Traders see virtually no chance the Fed will announce a cut to rates when its next meeting concludes on Wednesday, according to data from CME Group.