Oil prices jumped significantly on Monday, July 20, with Brent crude rising as much as 3.8% to over $91 a barrel, marking its highest level since June. US West Texas Intermediate (WTI) crude also increased by 2.5% to $84.52 a barrel. This surge was attributed to the escalating conflict between the US and Iran, which expanded beyond military targets and heightened concerns about energy shipments through the Strait of Hormuz, a critical chokepoint handling one-fifth of global oil trade. Both Brent and WTI front-month prices saw substantial weekly gains, with Brent up 15.9% and WTI up 15.5% in the week ending July 19.
The renewed geopolitical tensions brought inflation back into focus, especially after recent benign US economic data had eased expectations for a Federal Reserve interest rate hike. However, Federal Reserve Chair Kevin Warsh's clear priority to control inflation now suggests that traders will closely watch upcoming US economic data for signs that could cement expectations of a rate hike in September or October. Wee Khoon Chong, a macro strategist at BNY in Hong Kong, noted that the deteriorating risk backdrop, including firmer US dollar and higher oil prices, argues for a more defensive investment stance.
Bond markets reacted negatively to the rising oil prices and inflation concerns. Treasury 10-year futures slipped seven basis points, and Australian and New Zealand government bonds also declined. Australia's 10-year yield advanced six basis points to 4.96%. The dollar strengthened against most major currencies, and spot gold fell 0.4% to around $4,000 an ounce, extending last week's decline. Silver and platinum also traded lower, as the prospect of higher-for-longer interest rates reduced their appeal.
Despite the broader market concerns, equities found some footing. Nasdaq 100 futures rose 0.4% after a tech-led selloff last week. This stabilization came as Moonshot AI announced plans for an IPO within six months, challenging perceptions of US leadership in artificial intelligence. Bitcoin and Ether also saw modest gains, rising 0.4% to $64,743.41 and 0.6% to $1,877.67, respectively.
