Oil futures rose on Thursday after attacks on two tankers off the coast of Iran, while the U.S. Treasury yield curve steepened and stocks rose following economic data that was seen as strengthening the case for the Federal Reserve to cut interest rates this year.
Wall Street’s major stock indexes climbed after falling for two days as investors regained their appetite for risk assets.
The number of Americans applying for unemployment benefits unexpectedly rose last week, potentially adding to concerns about the U.S. labor market after May job growth slowed. Other data showed import prices fell by the most in five months in May in the latest indication of muted inflation pressures, adding to expectations the Fed will cut rates this year.
“There are a lot of cross currents but in general a grind higher,” said Joseph Quinlan, head of chief investment office market strategy for Merrill and Bank of America Private Bank in New York, citing everything from the Fed rate cut expectations to a lack of new headlines on the U.S.-China trade war.
“On days when there’s no new news from the U.S. and China that’s a positive,” he said. “The Middle East problems haven’t caused a flight to safety. That’s a positive sign.”
The S&P pared gains slightly but was still positive after U.S. Secretary of State Mike Pompeo said, without offering concrete evidence, the United States believes Iran is responsible for tanker attacks in the Gulf of Oman.
Canada’s main index finished slightly higher on Thursday, lifted by the heavy-weight energy sector as crude prices rallied following a suspected tanker attack near Iran.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially up 25.18 points, or 0.15 per cent, at 16,252.21.
The energy sector climbed 0.8 per cent, while the materials sector, which includes precious and base metals miners and fertilizer companies, also added 0.8 per cent as gold prices were supported by expectations of an interest rate cut by the U.S. Federal Reserve.
Dollarama Inc. jumped 11.3 per cent, among the biggest gainers, after the discount retailer raised its full-year comparable sales forecast and posted a stronger-than-expected rise in quarterly revenue.
In New York, the Dow Jones Industrial Average rose 102 points, or 0.39 per cent, to 26,106.83, the S&P 500 gained 11.84 points, or 0.41 per cent, to 2,891.68 and the Nasdaq Composite added 44.41 points, or 0.57 per cent, to 7,837.13.
The pan-European STOXX 600 index rose 0.16 per cent and MSCI’s gauge of stocks across the globe gained 0.01 per cent.
Increased expectations of Fed rate cuts pulled short-dated U.S. Treasury yields lower on Thursday, steepening the yield curve ahead of Friday’s retail sales data and the Fed’s meeting next week.
Benchmark 10-year notes last rose 11/32 in price to yield 2.091 per cent, from 2.127 per cent late on Wednesday.
In currencies, the U.S. dollar was little changed against the euro as investors were slow to take large positions before the Fed meeting and the G20 summit later in June when U.S. and China leaders are expected to discuss trade.
The dollar index, which tracks the greenback against six major currencies, rose 0.01 per cent, with the euro down 0.09 per cent to $1.1277.
The Japanese yen strengthened 0.16 per cent versus the greenback, to 108.34 per dollar, while sterling was last trading at $1.2681, down 0.04 per cent on the day.
Gold prices edged higher on expectations for a U.S. rate cut after the soft inflation data, although the uptick in equities capped gains.
Spot gold added 0.6 per cent to $1,340.78 an ounce.
Oil prices settled 2.2 per cent higher on Thursday after attacks on two oil tankers in the Gulf of Oman stoked concerns of reduced crude trade flows through one of the world’s key shipping routes.
The attacks near Iran and the Strait of Hormuz reignited worries about an impact to flows from the Middle East if insurance companies begin to reduce coverage for voyages through the region and additional shipping companies suspend new bookings, analysts said.
Such a disruption “could further exacerbate the supply problem,” said Andy Lipow, an analyst at Lipow Oil Associates in Houston.
Oil tanker owners DHT Holdings and Heidmar suspended new bookings to the Mid-East Gulf, three ship brokers said.
“This is the second attack in a month’s time,” said John Kilduff, a partner at Again Capital LLC in New York. “It raises the ante for insurance risk.”
Tensions in the Middle East have escalated since U.S. President Donald Trump withdrew from a 2015 multinational nuclear pact with Iran and reimposed sanctions, notably targeting Tehran’s oil exports.
Iran, which has distanced itself from the previous attacks, has said it would not be cowed by what it called psychological warfare.
The episode also fed fears of a new confrontation between Iran and the United States, which blamed Tehran for the incident.
U.S. Secretary of State Mike Pompeo said the United States has assessed Iran was behind the attacks, and arrived at its conclusion based on intelligence, weapons used and the level of expertise needed for the attacks on the tankers in the Gulf of Oman.
Also supporting oil bulls were signs that Organization of the Petroleum Exporting Countries (OPEC) members were close to agreeing on continued production cuts.
Brent crude futures settled up $1.34, or 2.23 per cent, at $61.31, having risen as much as 4.5 per cent to $62.64.
U.S. West Texas Intermediate crude futures were up $1.14, or 2.23 per cent, at $52.28 a barrel. WTI earlier rose as much as 4.5 per cent to $53.45.
Analysts said the price swings were subdued by recent grim forecasts for global crude demand.
“It’s a surprise that the market reaction has been so muted,” said Derek Brower, a director at RS Energy Group. “For traders, worries about the weakening global oil-demand picture are front of mind and enough to trump real, live geopolitical threats to physical supply.”