Oil tops $100, stocks slide as Middle East tensions escalate

On September 9, Wall Street closed lower as oil prices remained above $100 per barrel due to ongoing Middle East tensions and inflation concerns. All three major U.S. indices saw declines: the Dow Jones Industrial Average fell by 0.77%, the S&P 500 dropped 0.48%, and the Nasdaq Composite declined 0.64%. The MSCI gauge of global stocks also ended the day down by 0.52%.

Oil prices surged past $100 per barrel for the first time since July, with Brent crude settling at $101.21 per barrel and U.S. West Texas Intermediate crude at $96.05 per barrel. Yields on U.S. 10-year notes rose to 4.841%, the highest since November 2023, after the Treasury Department announced a $6 billion bond buyback, exceeding earlier expectations of $4 billion.

Brent breaking above $100 poses a significant psychological barrier for markets, but the primary worry is its impact on inflation. A prolonged oil shock could sustain price pressures and complicate central banks' already challenging policy environment. The euro gained strength ahead of the European Central Bank's policy announcement, with markets anticipating a rate hike due to inflation concerns from the Iran conflict.

The Japanese yen strengthened toward a nearly seven-month high against the dollar as traders exited short positions. Expectations are rising for faster Bank of Japan rate hikes and potential Japanese capital repatriation. The dollar index rose 0.05% to 98.83. Upcoming U.S. producer and consumer price reports will provide further insight into inflation trends.

A Reuters survey of economists shows about 70% expect the Federal Reserve to keep rates steady during its September meeting, a stark contrast to the 90% projection in August. Financial markets are divided on whether the Federal Reserve will raise rates at the upcoming FOMC meeting. Gold prices increased by 0.98% to around $4,396 per ounce.