Stocks wilt as oil rallies; Iran ceasefire 'on life support'
“There's been speculation about the Iran conflict flaring back up. That's pushed oil prices higher,” said analyst Emily Roland of Manulife John Hancock Investments.
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NEW YORK: Equity indexes dipped on Tuesday (May 12) as US inflation climbed while oil gained for a third straight day and the dollar rose as hopes faded for a deal to get ships moving through the Strait of Hormuz.
In April, US consumer prices (CPI) rose sharply for a second straight month, resulting in the largest annual increase in inflation in nearly three years, bolstering expectations that the Federal Reserve would keep interest rates unchanged for a while. The US war on Iran has driven oil prices higher, resulting in more expensive gasoline, diesel and jet fuel and economists expect to see second-round effects in the months ahead.
The data followed US President Donald Trump's announcement on Monday that a month-old ceasefire with Iran was "on life support" after Tehran's response to a US plan to end the war made clear the sides were far apart. With that, US crude rose 4.19 per cent to US$102.18 a barrel and Brent rose to US$108.25 per barrel, up 3.88 per cent.
"There's been speculation about the Iran conflict flaring back up. That's pushed oil prices higher," said Emily Roland, co-chief investment strategist at Manulife John Hancock Investments, also noting that rising Treasury yields added to pressure on stocks. "Some of that was on the back of the CPI report this morning that actually was pretty tame underneath the surface."
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Roland also said that a decline in semiconductor stocks was affecting sentiment and pointed to a pullback in technology shares in South Korea "which have been on an absolute tear in recent weeks."
This was after presidential policy adviser Kim Yong-beom floated an idea of "citizen dividends", as he argued in a social media post that excess earnings in the era of AI should be redistributed to all citizens and that South Korea could be the first country to make that happen.
The KOSPI index in Seoul recoiled after it hit a record high just below 8,000 points, and finished down 2.3 per cent, pulling down other regional markets.
On Wall Street at 11:05 a.m. ET (1505 GMT), the Dow Jones Industrial Average fell 270.62 points, or 0.54 per cent, to 49,433.85, the S&P 500 fell 58.99 points, or 0.80 per cent, to 7,353.85 and the Nasdaq Composite fell 358.20 points, or 1.36 per cent, to 25,915.92.
MSCI's gauge of stocks across the globe fell 9.84 points, or 0.89 per cent, to 1,098.45.
The pan-European STOXX 600 index fell 1.08 per cent.
RISING GLOBAL BOND YIELDS
In the bond market, US Treasury yields rose on concerns about continued energy supply disruptions in the Middle East and after data showing rising US consumer prices.
The yield on benchmark US 10-year notes rose 4.5 basis points to 4.457 per cent, from 4.412 per cent late on Monday while the 30-year bond yield rose 3.4 basis points to 5.0211 per cent.
The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 5.1 basis points to 3.998 per cent.
Rising global bond yields were led by a selloff in gilts in response to the pressure building on UK Prime Minister Keir Starmer, who on Tuesday defied calls to resign. He told ministers he would "get on with governing" despite a "destabilising" 48 hours of growing calls to set out a timetable for his departure after heavy losses in local elections.
In the UK bond market, the British 10-year gilt yield rose 10.2 basis points to 5.104 per cent. The British 2-year yield rose 5 basis points to 4.539 per cent.
Sterling weakened 0.64 per cent to US$1.352, making it one of the weakest performing major currencies on the day. Elsewhere in currencies, the US dollar advanced for a second straight session after the economic data and amid uncertainty over the durability of the US-Iran ceasefire.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.41 per cent to 98.37, with the euro down 0.42 per cent at US$1.1732.
Against the Japanese yen, the dollar strengthened 0.3 per cent to 157.63.
After meeting with Japanese Finance Minister Satsuki Katayama in Tokyo, US Treasury Secretary Scott Bessent said on X that coordination with Japan was "constant and robust" in tackling undesirable, excessively volatile currency moves.
The Korean won weakened 1.11 per cent against the dollar to 1,490.92 per dollar.
Gold prices were under pressure as fading hopes for a peace deal added to concerns about inflation and the prospect of higher global interest rates.
Spot gold fell 1.41 per cent to US$4,667.29 an ounce. US gold futures fell 0.71 per cent to US$4,685.20 an ounce.
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