Middle East tensions drive oil over $100, Wall Street drops

On September 9, Wall Street closed lower, with oil prices still hovering above $100 a barrel. The ongoing Gulf tensions and inflation concerns impacted investors. The Dow Jones Industrial Average fell by 0.77 percent, the S&P 500 dropped by 0.48 percent, and the Nasdaq Composite declined by 0.64 percent. MSCI's global stock gauge also saw a drop of 0.52 percent following the U.S. market close.

Stocks remained negative throughout the day as headlines highlighted oil prices surpassing the $100 mark for the first time since July. Iran claimed to have attacked 10 ships near the Strait of Hormuz in response to the U.S. sinking of five Iranian oil tankers. Brent crude rose 3.4 percent to $101.21 a barrel, and U.S. West Texas Intermediate crude climbed by $3.02, or 3.25 percent, to $96.05 a barrel - both the highest closing prices since May.

Meanwhile, yields on benchmark U.S. 10-year notes increased by 3.66 basis points to 4.841 percent, reaching levels not observed since November 2023, following the Treasury Department's announcement to purchase up to $6 billion in 10-to-20-year government bonds. The buyback exceeded the initially signaled $4 billion. Brent breaking above $100 is a significant psychological threshold for markets, but the more pressing concern lies in its implications for inflation.

A sustained oil shock could maintain price pressures and complicate the path for central banks navigating a challenging policy environment. Before the European Central Bank's policy decision, the euro edged higher. The yen strengthened near a seven-month high against the dollar as traders exited short positions. Expectations are building for faster Bank of Japan rate hikes and potential Japanese capital repatriation.

The dollar index rose slightly to 98.83. Upcoming U.S. producer and consumer price reports will provide further insights into whether inflation pressures are easing. A recent Reuters survey of economists indicated that around 70 percent expect the Federal Reserve to keep rates unchanged at its upcoming September meeting, lower than the 90 percent expectation of steady rates in August.

Financial markets remain divided over whether the FOMC will raise rates at the next meeting, an unusual level of uncertainty so close to a decision date. Gold also rose by 0.98 percent to around $4,396 an ounce.