Most equities rise after oil price plunge, US data in focus

Stocks experienced a general upward trend on Wednesday, September 30th, following a significant drop in oil prices the previous day. Investors had been anticipating the release of crucial U.S. inflation data later in the day. Both major crude contracts suffered substantial losses on Tuesday due to hopes for an eventual resolution to the U.S.-Iran conflict, which would reopen the Strait of Hormuz.

However, talks between the two sides had stalled, and both parties had provided conflicting information. The restoration of approximately half of Saudi Arabia's East-West pipeline capacity - previously shut down due to drone attacks - provided a notable boost, along with the U.S. administration's decision to release additional oil from its emergency reserves.

This came after Saudi Arabia had taken control of the pipeline, which had been a crucial alternative route for Saudi oil shipments while the Strait of Hormuz remained closed. Brent crude prices fell by over 2%, while West Texas Intermediate dipped by more than 3%, falling below $90 per barrel. Prices later edged back up on Wednesday but failed to recapture earlier gains.

Major Asian markets, including Tokyo, Hong Kong, Shanghai, Sydney, Wellington, Taipei, Mumbai, and Jakarta, all saw their stocks rise, while Seoul, Singapore, Manila, and Bangkok experienced declines. London's markets opened higher as UK economic growth estimates for the second quarter were revised upward. Shanghai and Hong Kong benefited from news of a fresh stimulus package in China, along with data showing that the country's factory activity had grown for the first time since June.

The surge in crude prices has increased inflation concerns and put pressure on central banks to raise interest rates. This has resulted in U.S. 30-year Treasury yields reaching a 24-year high of 5.6%, while the benchmark 10-year yield surpassed 5.2%, marking their highest levels since 2007. Despite the decline in oil prices, the broader equity market has not seen significant gains.

Chris Weston, from Pepperstone, noted that the decline in crude prices should generally benefit risk assets, but this has not been the case in practice. The lack of progress towards a diplomatic solution in the Middle East, coupled with the ongoing uncertainty surrounding oil supply and flows, has contributed to this mixed performance.

Additionally, President Trump's decision to release further barrels from the strategic petroleum reserve has driven a strong re-pricing in crude. Investors are now eagerly awaiting the release of personal consumption expenditure data for October, as this key inflation indicator will likely play a significant role at the Federal Reserve's policy meeting at the end of the month.

While the jobs market remains important, officials are primarily focused on curbing inflation, and any reading that exceeds expectations could prompt a second consecutive interest rate hike. New York Fed President John Williams indicated some optimism by suggesting that the bank may hold off on raising rates this year, stating that the September increase had provided policymakers with sufficient room to consider the next round of data.