Stocks Churn As Hormuz Standoff Spurs Rally in Oil

A rally in oil prices left stocks wavering while bond yields climbed, with trader anxiety building just days ahead of key inflation reports.

The lack of a deal to revive the Strait of Hormuz drove Brent crude above $87. Higher energy costs stoked concerns the Federal Reserve will have to raise rates this year despite a labor-market slowdown. Most shares in the S&P 500 fell. Nvidia Corp. sank on news reports that Wall Street giants are working with the chipmaker on a $500 billion AI funding package.

President Donald Trump lashed out against Iran’s demands for war compensation as part of talks to wind down the conflict, dimming hopes of a quick agreement that would reopen the strait.

Trump had signaled on Sunday that he was prepared to let economic pressure on Iran build, rather than launch fresh strikes to force a revival of the waterway.

“The failure of the governments to hold talks is worrying Wall Street participants, who had thought last week that the path to an agreement was increasingly narrow,” said Jose Torres at Interactive Brokers.

“Crude oil prices remain caught between opposing forces, as markets assess the possibility of a breakthrough over the Strait of Hormuz against Iran’s conditions for reopening the strategic waterway,” said Sugandha Sachdeva, founder of New Delhi-based research firm SS Wealth Street.

Iranian Foreign Minister Abbas Araqchi said on Sunday that Tehran was not engaged in direct talks with Washington and would not begin negotiations as long as the United States continued to breach an interim agreement signedin June.

“Any major progress towards restoring unrestricted shipping could exert downward pressure on oil prices, while a breakdown in negotiations or renewed supply disruptions could quickly revive the geopolitical risk premium,” Sachdeva said.

While stocks had seen a burst of enthusiasm about a possible reopening of Hormuz, markets may be less likely to respond positively to vague reports about progress in talks, said Chris Larkin at E*Trade from Morgan Stanley.

“The jobs report may have eased some anxieties about a Fed rate hike next month, but those concerns could hit new highs without cooler-than-expected inflation numbers this week,” he added.

The closely watched consumer price index is seen rising 0.1% in July following a 0.4% decline in the prior month, based on the median projection in a Bloomberg survey of economists ahead of Wednesday’s Bureau of Labor Statistics release.

Fed Bank of Cleveland President Beth Hammack told Yahoo Finance it’s possible that a number of rate hikes may be needed to bring inflation down to the target, but she doesn’t want to prejudge what the end point will be.

Elsewhere, the yen fell, erasing half of the gains triggered when authorities from the US and Japan intervened to support the currency.

“Macro data are set to regain control of the equity narrative. That puts added weight on the inflation report, which could go a long way toward cementing expectations for the September FOMC meeting.”

The S&P 500 was little changed as of 4 p.m. New York time. The Nasdaq 100 fell 0.3 percent. The Dow Jones Industrial Average fell 0.1 percent. The MSCI World Index was little changed.