US Stocks Fall, Oil Markets Unstable Amid Ongoing US-Iran Diplomatic Deadlock

Market Volatility Persists Amid US-Iran Peace Negotiations

May 7, 2024 (Reuters) - U.S. and European stocks experienced a decline, while oil prices remained volatile but ultimately unchanged on Thursday, following a report indicating that Iran would not permit the United States to reopen the Strait of Hormuz with an "unrealistic plan." The report comes as the United States and Iran were edging toward a limited and temporary agreement to halt their war, with a draft framework that would stop the fighting but leave the most contentious issues unresolved.

Market Performance

The S&P 500 fell 0.4%, the Nasdaq Composite dipped 0.1%, and the Dow Jones Industrial Average lost 0.5%. In Europe, the STOXX 600 finished 1.1% lower, having jumped 2.2% on Wednesday, while MSCI's broadest index of Asia-Pacific shares outside Japan hit a fresh all-time high, up 1.6%. Japan's Nikkei crossed 62,000 for the first time.

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The Middle East situation remains uncertain, with markets taking note of the "momentum going in a good direction." This positive market mood is largely attributed to a strong earnings season and a relatively robust macroeconomic environment. MSCI's All-Country World Index ticked down 0.1%, holding around record highs.

Oil Prices and Global Economy

Brent crude fell about 0.7% to $100.56 a barrel, having tumbled nearly 8% on Wednesday. Even after that slide, Brent is still around 40% above its late-February level, when the war began, while 10-year Treasury yields have surged, a reminder of the strain higher energy costs continue to put on the global economy. Ten-year U.S. Treasury yields rose by 3.4 basis points to 4.388%.

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Earnings Season

S&P 500 companies are on track for their strongest profit growth in more than four years, while blowout results from Samsung, SK Hynix, and TSMC have reinforced the upbeat tone in Asia. Investors await the U.S. non-farm payrolls report on Friday, with jobs expected to have increased in April by 62,000 after rebounding 178,000 in March.

Currency Markets

The euro nudged up and last fetched $1.175. The dollar index was flat, while the yen remained in the spotlight after spikes in recent sessions prompted market speculation that Japan had intervened to support the long-battered currency. The yen ticked down 0.2% at 156.66 per dollar, having hit a 10-week high of 155 on Wednesday.