Crude oil prices hit three-and-a-half-year highs yesterday after President Donald Trump pulled the US out of an international nuclear deal with Iran, while the dollar touched a new high for the year and world stocks held steady.
Trump’s move sparked fears of increased tension in the Middle East and uncertainty over global oil supplies.
Demand for safe-haven assets remained muted as the immediate market impact was seen as specific to oil supply, but investors remained mindful of the knock-on effects on inflation.
Gold prices retreated and bond yields rose.
The US 10-year Treasury once again breached the psychologically significant three per cent level and hit a two-week high of 3.0140 per cent, supported by expectations of higher interest rates.
The impact of Mr Trump’s decision was mostly limited to oil markets and energy-related stocks. West Texas Intermediate crude futures hit their highest level since November 2014 at $71.17 per barrel, last up 2.7 per cent.
Brent crude futures jumped as much as 2.8 per cent to a three-and-a-half-year high of $77.20.
The MSCI world equity index, which tracks shares in 47 countries, was flat and continued to trade in a narrow range.
The pan-European STOXX 600, meanwhile, rose 0.2 per cent as oil majors gained and earnings from Siemens and Imperial Brands dominated trading.
In the US, stocks futures pointed to a positive start for Wall Street, with E-Mini futures for the S&P 500 up 0.5 per cent.
The reaction in Asian markets was more pronounced as renewed US sanctions on Tehran were seen as disruptive for many companies that have dealings with Iran.
MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.1 per cent, while Japan’s Nikkei fell 0.4 per cent.
Iran, the third-biggest Opec producer, produces about 3.8 million barrels per day (bpd) or about four per cent of the world’s oil supplies.
The US Treasury said it will reimpose a wide array of Iran-related sanctions after the expiry of 90- and 180-day wind-down periods, including those aimed at Iran’s oil sector and transactions with its central bank.