Oil leaps back towards $110, stocks tumble as Trump vows to keep hitting Iran

Oil prices surged and global equity and bond markets recoiled ​again on Thursday after U.S. President Donald Trump dashed hopes of a swift resolution to the Middle East war.

Brent crude jumped more than ‌7% to above $109 a barrel after Trump said in a prime-time address on Wednesday that the U.S. would hit Iran “extremely hard” in the coming weeks and “bring them back to the Stone Ages where they belong”.

Although he also said the U.S. campaign was nearing an end, the renewed rhetoric sent the pan-European FTSEurofirst 300 and Wall Street futures down by between 1.3% and 1.8%, after Asian stocks had taken ​a beating overnight.

Government bond yields jumped on expectations that an inflation spike would force central banks to raise interest rates, or at least keep them on hold.

The dollar, which ​has reasserted its role as a safe-haven currency, rose too, pushing the euro down 0.5% to $1.1526 and sterling below $1.32. /FRX

“Over the past 48 hours, Tehran ⁠and Washington have exchanged a cacophony of statements, some suggesting rising odds of de-escalation. At the same time, kinetic action has continued unabated,” BCA Research’s Felix-Antoine ​Vezina-Poirier said.

“Our GeoMacro strategists offer simple guidance for weighing volatile headlines: Stick to the facts. First, shipping through Hormuz has picked up over the past few days. Second, ​Iran is deliberately shifting away from GCC targets toward Israeli ones.”

WALL STREET POINTS LOWER, ASIA CLOBBERED

Wall Street’s S&P and Nasdaq futures were pointing 1.4% and 1.9% lower respectively, although energy stocks bucked the trend, with Exxon Mobil and Chevron both up about 3%. The sector is the only one to have gained since the war erupted.

In a closely watched address on Wednesday, Trump said ​U.S. attacks on Iran would be intensified over the next two to three weeks. That came just a day after he told Reuters the U.S. would be “out of Iran pretty quickly”.

Asian ​equities bore the brunt of the subsequent reaction, with Japan’s Nikkei closing down 2.4% and South Korea’s Kospi index sliding 4.7%. Both indexes are heavily weighted towards energy-intensive chipmakers and technology ‌firms.

“The only ⁠thing that really matters is whether the Strait of Hormuz will open soon,” said Prashant Newnaha, senior rates strategist at TD Securities, referring to the narrow chokepoint through which a fifth of global oil and liquefied natural gas is shipped.

“Trump’s speech doesn’t imply this is likely to happen as quickly as the markets were expecting.”

Trump said on Wednesday the U.S. did not need the key oil gateway and that it would open naturally once the conflict was over.

Ten-year U.S. Treasury yields – a major ​driver of global borrowing costs – climbed ​5 basis points to 4.376%. Benchmark ⁠European yields were up a similar amount at just over 3%, though both were still on track for their first weekly drop since the war began.

Gold and silver fell 3% and 5.7% respectively, as a modest bounce over recent days came to an abrupt halt and the dollar index ​climbed back above 100.05, after dropping nearly 1% in the previous two days on optimism the war might end soon.

There ​were also growing signs ⁠of urgency in oil-importing emerging markets.

India’s central bank moved to ban trading of so-called non-deliverable forwards in an effort to halt the rupee’s run of record lows. The move sent the currency up 2% , although analysts questioned how long the rebound would last.

With Brent futures back up to $109.60 per barrel and U.S. West Texas Intermediate at $109.14, it was the war – ⁠and the roughly 80% leap ​in oil and natural gas prices so far this year – that remained investors’ main focus.

“The fact that we can ​expect 2-3 more weeks of action, boots on the ground were not ruled out (during Trump’s TV address) and that threats to hit infrastructure were reiterated, will put the market back on the defensive,” ​Pictet Asset Management’s Jon Withaar said.