Oil spikes while divided Federal Reserve keeps interest rates unchanged
Oil prices jumped as fears grew that the Strait of Hormuz could stay blocked.
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NEW YORK: Oil prices shot higher Wednesday (Apr 29) on concerns of an extended blockade of the Strait of Hormuz, while Wall Street stocks moved indecisively after a divided Federal Reserve kept interest rates unchanged.
Brent oil futures got within striking distance of US$120 a barrel before retreating a bit as markets girded for a much longer Middle East war.
The United States could extend its naval blockade of Iran for months longer, oil executives were told in a meeting with Trump, an official said, after press reports that he had rejected Iran's latest proposed deal to reopen the Strait of Hormuz.
"The market is increasingly shifting towards a view that no longer expects a quick and lasting peace, nor an immediate reopening of the Strait of Hormuz," said Arne Lohmann Rasmussen, chief analyst at Global Risk Management.
Brent finished up 6.1 per cent at US$118.03 a barrel.
As expected, the Fed kept interest rates unchanged for a third straight meeting as central bankers grappled with uncertainty stemming from the Middle East war.
"Inflation is elevated, in part reflecting the recent increase in global energy prices," the central bank said.
Fed Chair Jerome Powell said he plans to stay at the central bank as a governor after his term as chair ends. At a press conference, he congratulated his expected successor, Kevin Warsh, for clearing a key hurdle in a rocky confirmation process.
But Wednesday's vote pointed to division among policymakers as higher oil prices add to inflation fears.
The Fed's policy announcement said three Fed officials who backed the pause on rates "did not support inclusion of an easing bias in the statement at this time."
A fourth voting member, Stephen Miran, had sought a quarter-point cut, giving Wednesday's gathering the largest number of dissenting votes since 1992.
The dissents point to uncertainty about the path of Fed policy "until the Middle East conflict is decidedly over," said Jeffrey Roach, chief economist for LPL Financial.
"Expect more dissents in the near term and expect more volatility in the rates markets," Roach said in a note. "The incoming chair will face challenges building consensus around a new policy regime."
Both the Dow and S&P 500 finished a volatile session lower while the Nasdaq eked out a small gain.
Earlier, stock markets in London, Paris and Frankfurt finished in the red, despite some major companies spiking on strong earnings reports.
Shares in Swiss banking giant UBS jumped more than three per cent as its net profit rose 80 per cent in the first quarter, beating expectations.
Strong quarterly profit growth led shares in German sportswear giant Adidas to jump more than eight per cent in Frankfurt.
After a weak lead from Wall Street, Asian stock markets mostly rose Wednesday, with Hong Kong up more than one per cent.
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