Oil spikes while stocks slip ahead of US Fed rate decision

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A file photo of oil pump jacks. — AFP/File
A file photo of oil pump jacks. — AFP/File

Oil prices shot higher Wednesday on concerns of an extended blockade of the Strait of Hormuz, while Wall Street stocks mostly slid as investors awaited a US Fed rate decision and a slew of tech firm earnings.

Both main oil contracts jumped nearly six per cent after President Donald Trump warned Tehran on Wednesday that it should “get smart soon” and capitulate to Washington’s demands for tight controls on its nuclear programme, as a US naval blockade turned the screws on Iran’s economy.

Meanwhile, the United States could extend its naval blockade of Iran for months more, oil executives were told in a meeting with Trump, an administration official said.

Analysts warned that such a move would prompt Iran to maintain its own blockade of the Strait of Hormuz, leaving the vital oil shipping route at a near standstill.

The US Federal Reserve is widely expected to keep interest rates unchanged later in the day, with markets closely watching its guidance on inflation as energy costs soar.

The dollar drifted higher against its main peers.

“The longer the conflict persists and the Strait of Hormuz remains disrupted, the more pronounced the inflationary pressures are likely to become,” said Anna Macdonald, investment strategy director at Hargreaves Lansdown.

International benchmark oil contract Brent crude for June delivery rose to $117.81 a barrel, its highest level since the fragile ceasefire between the US and Iran came into effect.

“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.

Kathleen Brooks, research director at trading platform XTB, warned: “This is a new phase of the war in Iran, and we could now see oil prices go back to the March highs around $120 per barrel for Brent.”

With talks to end the Middle East war appearing to be at a standstill, investors’ attention turned to earnings updates.

Wall Street’s main stock indices were mostly lower in late morning trade.

“As with other financial markets, investors appear to be happy to sit on their hands ahead of tonight’s monetary policy announcement from the Federal Reserve’s FOMC, and as four constituents of the ‘Magnificent Seven’ prepare to release their latest earnings updates after the close,” said David Morrison, senior market analyst at Trade Nation.

Investors will be paying particular attention to spending on artificial intelligence by Amazon, Google, Meta and Microsoft — and whether it is translating into revenue.

“Given the outsized weighting of these companies in the index, and the enormous capital expenditure they have announced to build AI capabilities, these results will be closely watched by investors,” Hargreaves Lansdown’s Macdonald added.

Tech stocks took a hit on Tuesday following a report in the Wall Street Journal that ChatGPT-maker OpenAI had missed targets on user numbers and revenue.

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 percent as its net profit rose 80pc in the first quarter, beating expectations.

Strong quarterly profit growth led shares in German sportswear giant Adidas to jump more than eight percent in Frankfurt.

After a weak lead from Wall Street, Asian stock markets mostly rose Wednesday, with Hong Kong up more than one percent.

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