By Marc Jones
LONDON, March 5 (Reuters) – The Iran conflict drove oil prices higher again on Thursday, keeping contained pressure on Europe’s markets after reports of de-escalation efforts and a massive stabilisation package for South Korea’s bourses triggered sharp rallies in Asia.
Iran launched a wave of missiles at Israel early on Thursday, just hours after Republican Senators in Washington blocked a bipartisan move to halt the U.S. air assault.
U.S. Energy Secretary Chris Wright said the impact of the conflict on energy markets would be a “small price” to pay for achieving the military goals. But International Monetary Fund head Kristalina Georgieva had warned it was already testing the resilience of the global economy.
Speculation about Iran’s potential readiness for talks helped European share indexes reverse modest early falls, although the euro, pound and the region’s government bond markets remained under pressure as oil ticked up to $83. [O/R]
Some traders said the improved sentiment followed a New York Times report that Iranian intelligence had contacted the CIA early in the war about a path towards ending it.
But a source from the Iranian intelligence ministry rejected the article.
“What is quite notable is that the oil prices haven’t come down,” said Royal London Asset Management’s Trevor Greetham, pointing to experts expressing doubts over U.S. President Donald Trump’s pledge in recent days to provide insurance for oil tankers against attacks.
“I’m not reading too much into the recovery (in stock prices) as we still think this could go on for some time.”
The overnight action in Asia had again been wild.
South Korea’s benchmark KOSPI index closed up almost 10%, swiftly erasing most of its worst-ever daily drop from a day earlier.
Its President Lee Jae Myung ordered the activation of a $68 billion market stabilisation fund, citing the need to smooth out volatility caused by “the escalating crisis in the Middle East”.
Japan’s Nikkei jumped nearly 2% too, while Chinese shares climbed almost 1% after party elites in Beijing unveiled a 4.5%-5% economic growth target for this year as part of their longer-term plans. [.T][.SS]
OIL PRESSURE
Concerns about energy supply continued to drive up oil prices and the dollar.
Brent crude, which has gained about 15% since the weekend’s U.S. and Israeli air strikes on Iran, climbed as high as $84.25 per barrel before shuffling back to $83 in London trading. [O/R]
Ship-tracking data now shows around 300 oil tankers currently inside the Strait of Hormuz with traffic in and out of the chokepoint all but halted following the outbreak of war.
Royal London’s Greetham said that with natural gas prices also surging, bond market investors had cut back expectations of global interest rate cuts, and were weighing up the potential for hikes.
The yield on benchmark U.S. 10-year notes, which moves inversely to prices, rose almost 4 basis points to 4.12%. Moves were both smaller and choppier in Europe, but kept the key German bund market heading for its steepest weekly selloff in a year. [GVD/EUR]
The dollar also resumed its gains after a breather in the previous session. The dollar index, which measures the greenback against a basket of currencies, rose 0.2% to 98.9. The euro dipped 0.2% to $1.1610, while the yen inched down to 157.20 per dollar. [/FRX]
Traditional safe haven gold edged up 0.3% to $5,153 an ounce, although it too was off its overnight highs of $5,175 an ounce.
A number of European Central Bank officials, including its president, Christine Lagarde, are due to speak later. Investors will be scouring their remarks for any hint of how the current situation might be playing into their thinking.
German Bundesbank chief Joachim Nagel was already out with a warning a long war in Iran would push up inflation and hurt growth, although it was still too early to draw any conclusion yet.
“The recent dynamics could also be relevant for the March ECB projections,” Commerzbank strategist Erik Liem said. “The cutoff date is usually around two weeks before the meeting.”
(Reporting by Rocky Swift; Editing by Sonali Paul, Edwina Gibbs, Alexandra Hudson)
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