Oil higher, stocks steady as US-Iran peace talks approach ~ EconomyLens.com

London (AFP) – Investors were cautious Wednesday ahead of a Federal Reserve rate decision and the start of US-Iran peace talks, with oil prices climbing and stocks holding steady. Oil tumbled in recent days as optimism grew there would be a lasting Middle East peace agreement, which would mean supplies would be back on track, but reversed course on Wednesday. Prices briefly jumped five percent as uncertainty spread before the official signing of the memorandum of understanding by the United States and Iran in Switzerland on Friday. Details of the deal remain scant, and after the signing the two countries will begin negotiations that will focus on the fate of Tehran’s nuclear programme and a plan for lifting international economic sanctions.

“Investors also want clarity concerning the Strait of Hormuz, and if shipping will be forced to pay a ‘fee’ to Tehran, ostensibly for an escort to ensure a safe transit,” said market analyst David Morrison at Trade Nation. US President Donald Trump has said the Strait of Hormuz — through which a fifth of global crude usually passes — would “completely open” once the deal is signed. Oil industry experts and shipping companies have warned that it will take time to restore normal operations after the waterway’s near shutdown. Crude inventories held by OECD member countries fell in May to the lowest level since 1990 as governments drew down stocks to offset the blockage of Gulf crude shipments during the Middle East war, the International Energy Agency said Wednesday.

Wall Street’s main stock markets were more or less steady in late morning trading, with European stocks turning in a similar performance. “The collapse in oil has changed the tone of global markets, supporting bonds (prices) and reducing near-term inflation pressure,” noted Tickmill market strategist Patrick Munnelly. “But it has not produced a clean equity rally because AI valuations remain under scrutiny and central banks are not ready to fully reverse their caution.” The dollar was mixed ahead of the US Federal Reserve’s first policy announcement under new Trump-appointed boss Kevin Warsh.

While the Fed is expected to stick with the current interest rates, investors will be keeping a close eye on its post-meeting statement for an idea about the policy committee’s thinking in light of surging inflation and a strong jobs market. Data last week showed US consumer prices rose in May at their highest level for three years owing to the impact of surging oil costs caused by the war. The market expects the Fed will eventually announce a rate increase before the end of the year, despite Trump’s previous demands for cuts.

Chris Beauchamp, chief market analyst at online trading and investing platform IG, said the US-Iran deal had “given the new boy a big boost ahead of his first appearance, as a more convincing tale of falling energy prices can now be told, but even with this expectation there is more than an air of anticipation this afternoon.” eToro’s US investment analyst Bret Kenwell said inflation would be a top focus as investors weigh the Fed’s updated projections and Warsh’s remarks. “The big question is whether renewed rate-hike concerns will cool off a rally that has recently started to reheat.”