Stocks sink as volatile oil prices, Middle East conflict weigh on trading
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Global shares edged lower on Wednesday as oil prices fluctuated and mixed signals about the U.S.-Israeli stance on Iran heightened investor anxiety over inflationary pressures and risks to economic growth. Beyond the Middle East, investors were reminded of the vulnerabilities within private credit after the Financial Times, citing people familiar with the matter, reported JPMorgan Chase JPM.N had marked down the value of some loans held by private-credit groups and was tightening its lending to the sector. Oil had another volatile day, although price movement was relatively muted compared to the record price swings of Monday's session. The Wall Street Journal reported the International Energy Agency has proposed the largest release of reserves in its history to bring down crude prices, while energy ministers from the G7 nations said they supported the principle of using stockpiles to deal with the situation. Brent crude futures were last up around 2% at $89.47 a barrel, having traded as low as $86.24 overnight. The MSCI All-World index eased a touch on the day as losses in European shares mounted, leaving the STOXX 600 down 0.7%, shrugging off gains in Asia, where the Nikkei rose 1.7% and South Korea's Kospi gained 1.75%. U.S. stock futures were virtually flat on the day . "Until we move onto the next big event, markets continue to be driven by volatile news flow around Iran and the outlook for oil flows. Overall, the narrative has shifted towards a cautiously more optimistic tone, even as there's little sign of an imminent end to the conflict," Deutsche Bank strategist Jim Reid said. Investors remain on edge as the Middle East conflict threatens to freeze global energy trade and ignite a price shock - a risk that world leaders are scrambling to address. The immediate concern is when the Strait of Hormuz, a critical choke point for global oil supply effectively controlled by Iran, will again be safe for traffic. European Central Bank President Christine Lagarde said on Tuesday the central bank would do everything to keep inflation under control to avoid a repeat of the 2022 energy price shock. Several ECB officials have signalled they favour a wait-and-see approach before taking action.
SAFE-HAVEN DOLLAR
The dollar is still the safe haven of choice for investors as the war approaches its second week. The U.S. currency has gained well over 1% against a basket of other major currencies since the start of the conflict, compared with a 1% drop in the Swiss franc and a 1.5% loss in gold, two classic safe-haven assets.
"You have only one safe asset, which has been the U.S. dollar," said Frank Benzimra, head of Asia equity strategy and multi-asset strategist at Societe Generale.
"Even gold or Treasuries did not play this huge safe-haven role. In the case of Treasuries, because of the inflation concerns, and in the case of gold, because we could see some investors selling their gains in gold to offset some losses in the equity market."
The euro and the pound struggled to make headway, trading almost unchanged at $1.1615 and $1.3432, respectively. The yen weakened, leaving the dollar up 0.15% at 158.3.
The surge in bond yields at the start of the week over the threat of a prolonged rise in energy prices has added to existing concerns about other parts of the market that many see as being at risk of overheating, such as private credit and, in particular, the vast sums involved in the rollout of artificial intelligence.
Growing concerns about deteriorating credit quality, specifically regarding AI-led disruption in the software sector, have triggered a wave of investor withdrawals from private credit vehicles, including BlackRock's $26 billion HPS Corporate Lending Fund.
PMorgan is focusing on loans to software companies it considers most susceptible to disruption, the FT reported on Wednesday.
U.S. Treasuries fell again on Wednesday, pushing the yield on the benchmark 10-year note up 3 basis points to 4.165%, ahead of the monthly inflation report for February later on Wednesday.
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