LONDON – The dollar edged higher while stocks fell on Monday as investors spooked by stalled U.S.-Iran negotiations, effectively closing the crucial Strait of Hormuz and sending oil prices rising again.
President Donald Trump on Sunday rejected Iran’s response to a US peace offer to end the war, calling the Iranian demands “totally unacceptable.”
Brent crude oil futures prices are up about 45% since before the U.S. and Israel launched attacks on Iran on February 28, rose 4.6% overnight and were up 2.4% on the day to trade at $103.75 a barrel.
The MSCI All World Index was relatively flat, but in Europe the STOXX 600 fell 0.2% and US stock futures fell 0.1%.
The correlation between oil prices and stock markets has turned positive over the past two weeks, meaning the two are now more likely to move in parallel, rather than in opposite directions, as they have in most previous wars.
Investors are looking beyond energy prices for now, as tech enthusiasm remains strong and macro data, including last week’s U.S. jobs report, suggest the global economy is holding up.
“The market has been very good at absorbing this and learning to accept what we thought was impossible. And that’s where we are with oil right now. But if it goes up another 50%, that’s going to be another challenge we have to overcome,” said Chris Beauchamp, chief market strategist at IG.
“If you look at the revenue data, it’s a very good number. And if it wasn’t for the Iran situation, we would actually be firing on all cylinders, more than we are, in fact. But people are comfortable believing that we need some sort of deal with Iran, no matter how ugly it is,” he said.
Iranian media reported that the Iranian plan sent to the United States emphasized the need for an end to the war on all fronts and the lifting of sanctions against Tehran, along with reparations and recognition of Iranian control of the Strait of Hormuz.
“The Middle East conflict is now in its 11th week,” said Bruce Kasman, JPMorgan’s global head of economics. “Energy prices have soared, but they remain more of a headwind than an obstacle to ending expansion.”
“The risk of a more rapid move increases with each passing week if the Strait of Hormuz remains closed, and our products team sees operational stress levels starting sometime in June.”
Iran has effectively shut down the strait, blocking the corridor that normally handles about one-fifth of the world’s oil and gas shipments.
The dollar fell 0.3% to 157.12 yen, and the euro fell 0.12% to $1.177. Sterling fell 0.32% to trade at $1.36 as British Prime Minister Keir Starmer sought to quell a revolt within the ruling Labor Party following clashes in last week’s local elections.
Optimism about AI sent Chinese stocks to an 11-year high overnight, and South Korea’s KOSPI index, which is dominated by chip makers, rose 4.3%.
China’s producer prices soared to the highest in nearly four years, data showed, and consumer inflation accelerated as global energy costs rose.
Gulf issues will also be on the agenda when President Trump visits China starting Wednesday and holds face-to-face talks with Chinese President Xi Jinping for the first time in more than six months.
In commodity markets, a strong dollar and inflation concerns came to the fore, with gold down 1% to $4,665 an ounce.
