Futures rise as markets await Iran's response to US strikes

by Andre Janse van Vuuren

US equity futures advanced and crude prices erased gains on speculation that Iran’s immediate response to Washington’s bombing of its nuclear sites is unlikely to significantly disrupt oil traffic from the Middle East.

S&P 500 contracts rose 0.2% while European stocks were little changed. Brent crude dropped 0.6% after shedding an advance of as much as 5.7%. The dollar strengthened 0.3% while US Treasuries slipped. 

Oil remained the primary focus as any interruption to traffic through the Strait of Hormuz, a major artery for global crude and natural gas, raises the specter of a spike in energy prices. While Iran’s Foreign Minister Abbas Araghchi said the country reserved all options for a response, there haven’t yet been any signs of disruption to physical oil flows.

“The key will be whether there is a closure in the Strait of Hormuz. That’s not our central scenario,” said Francisco Simon, European head of strategy at Santander Asset Management. “The evolution of the conflict in the coming days and weeks will keep the market in a range.”

Market reaction had been generally muted since Israel’s initial assault on Iran this month. Even after falling for the past two weeks, the S&P 500 is only about 3% below its all-time high from February. 

Further downside may be limited because some market participants have been preparing for a worsening conflict. Fund managers have reduced their stock holdings, shares are no longer overbought and hedging demand has increased, meaning a deep selloff is less likely at these levels. 

If Iran was to close the Strait of Hormuz, “a stagflation scenario with lower growth and higher inflation due to elevated oil prices is the main risk for markets as it would also curb the abilities of central banks to support markets,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg.

A data release on Monday showed private sector activity in the euro area barely grew in June, as erratic US trade policy and geopolitical conflicts leave companies in the dark on what’s next.

The Composite Purchasing Managers’ Index by S&P Global held at 50.2, remaining just above the 50 threshold separating growth from contraction, data showed. Economists had anticipated an acceleration to 50.5.

Some of the main moves in markets: 

Stocks

• The Stoxx Europe 600 was little changed as of 9:31 a.m. London time
• S&P 500 futures rose 0.2%
• Nasdaq 100 futures rose 0.3%
• Futures on the Dow Jones Industrial Average rose 0.1%
• The MSCI Asia Pacific Index fell 0.9%
• The MSCI Emerging Markets Index fell 0.6%

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%
• The euro fell 0.2% to $1.1497
• The Japanese yen fell 0.9% to 147.40 per dollar
• The offshore yuan was little changed at 7.1861 per dollar
• The British pound was little changed at $1.3440

Cryptocurrencies

• Bitcoin rose 2.4% to $101,950.11
• Ether rose 3.4% to $2,263.4

Bonds

• The yield on 10-year Treasuries advanced two basis points to 4.40%
• Germany’s 10-year yield advanced three basis points to 2.54%
• Britain’s 10-year yield advanced two basis points to 4.56%

Commodities

• Brent crude fell 0.6% to $76.55 a barrel
• Spot gold fell 0.2% to $3,361.51 an ounce

This story was produced with the assistance of Bloomberg Automation.

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