Oil prices rise, Asia stocks drift amid US-Iran stalemate

SINGAPORE: Oil prices rose on Tuesday as negotiations between the US and Iran over a peace deal and the ​reopening of the Strait of Hormuz hit an impasse, while Asian shares drifted on protracted uncertainty over the global inflation outlook.

US President ‌Donald Trump on Monday responded to Iran’s conditions for a peace deal with his own demands that Iran pay compensation for people killed in wars, attacks and protests, in a rhetorical escalation likely to complicate efforts to reopen the crucial waterway.

Brent crude futures edged up to hit $88.00 per barrel and US crude futures ticked up to $82.45, both the highest levels since July ​31, after the contracts rallied roughly 5% on Monday.

“We’re now in a bit of a Mexican standoff, if you’d like, in terms of ​who blinks first,” said Tony Sycamore, a market analyst at IG.

“This is going to be almost a war of attrition ⁠now,” he said. “You probably can see the (oil) market sitting around the $75-95 range while we wait to see who blinks first.”

The latest uptick in fuel costs raises ​the stakes for the U.S. July consumer price report due on Wednesday, where expectations are for a monthly rise of 0.1% in the headline reading and ​0.2% for the core measure.

Any upside surprise could rekindle bets of a Federal Reserve rate hike next month, with the odds currently a coin toss.

“We think the risks are skewed towards a hot print, which would probably drive a rebound in rate expectations and, potentially, renewed worries about stagflation,” said Jonas Goltermann, chief markets economist at Capital Economics.

“Overall, our assessment remains ​that the U.S. economy is running a bit hotter than a ‘goldilocks’ situation. That points to higher interest rates.”

Trading of cash US Treasuries was closed in ​Asia on Tuesday owing to a holiday in Japan, but futures fell slightly, implying higher yields.

Down Under, the Reserve Bank of Australia is due to announce its policy decision later ‌on Tuesday, ⁠where expectations are for the central bank to keep rates on hold.

MSCI’s broadest index of Asia-Pacific shares outside Japan swung between losses and gains and was last up 0.2% while South Korea’s Kospi rose 0.3%, as the latest escalation in Gulf hostilities kept market sentiment fragile.

Nasdaq futures edged 0.28% higher while S&P 500 futures added 0.1% after Wall Street ended lower in Monday’s cash session.

EUROSTOXX 50 futures slipped 0.05%, while FTSE futures and DAX futures were flat.

Overnight, Nvidia said it has ​partnered with six major financial institutions ​to launch compute financing platforms aimed at ⁠raising over $500 billion in third-party capital for AI infrastructure, underscoring the scale of the sector’s investment boom.

“A small part of me was left wondering whether this is how it felt when sub-prime mortgages first became a mainstream product - the ​innovation that eventually helped trigger the GFC,” said IG’s Sycamore.

In currencies, the yen was back in the spotlight, struggling ​on the weaker side ⁠of 159 per dollar and well away from last week’s high of 155.20 following several suspected rounds of intervention, including a joint one by Japan and the United States.

“The market likely remains vigilant about further joint U.S.-Japan yen-buying intervention, so USD/JPY breaching 160 in the very near term seems unlikely,” said analysts at Nomura in a note.

“However, ⁠the latest ​price action indicates there are quite a lot of USD/JPY dip-buyers, after the pair reached the ​156-157 range for the first time since May.”

The dollar got a marginal lift from the renewed climb in oil prices, keeping the euro away from a 1-1/2-month high as it last traded ​at $1.1546, while sterling eased from Monday’s one-month top and changed hands at $1.3512.

Elsewhere, spot gold was up 0.5% to $4,409.81 an ounce.