Global stocks surge as oil prices rally on prospect of new Iran sanctions

Stocks rose on global markets, boosted by a rise in oil prices after President Donald Trump’s decision to withdraw from the Iran nuclear deal.

Investors are grappling with the prospect of sanctions being reimposed on Iran, the impact on the world oil market and corporates such as aircraft manufacturers who would have benefited from Iran’s return to the global business community.

Mr Trump says the US will also sanction any nation that helps Iran pursue nuclear weapons, as well as companies and banks that continue to do business there.

Oil prices climbed to three and a half-year highs in London and New York.

“Big picture, it’s a positive,” says Samantha Azzarello, global market strategist at JP Morgan ETFs.

Many investors look at oil as an economic indicator and that energy firms have played a large role in profit growth for the broader market.

“No one was really expecting oil prices to have so much momentum,” she adds.

Brent crude, the global benchmark, was up 2.85% at $US76.98 a barrel in London while US crude futures rose 2.78% to $US70.98 a barrel.

Dow rises 182 points
Energy shares led a rally on Wall Street. The Dow Jones Industrial Average climbed 182.33 points, or 0.75%, to 24,542.54 at the close. The S&P 500 added 1.0% to 2697.79 and the Nasdaq Composite also rose 1.0% to 7339.91.

US government bonds remained under pressure as oil prices rose, with the yield on the benchmark 10-year Treasury note rising to 2.999% from 2.968% on Tuesday.

Some investors expect higher inflation as a result of oil’s recent gains, which could give the US Federal Reserve a freer hand to raise interest rates and secure higher Treasury yields.

“For the past few weeks, we’ve seen yields increasing and we suspect a lot of it is related to oil prices going up,” says Marija Veitmane, senior macro strategist at State Street Global Markets.

“Should [the climb in] oil prices persist, that can potentially feed into inflation expectations and rate hikes, but probably not [force rate increases] yet.

“If you look at underlying sanctions and tariffs, so far the economic impact of that is negligible – what is worrisome is the threat of it escalating.”

US producer prices rise
In economic news, US producer prices edged only slightly higher last month, a possible sign inflation pressures in the economy remain relatively modest.

Boeing shares rose 1.7% and European rival Airbus fell 0.9% as two companies that will be most affected by fresh Iranian sanctions.

The two have more than $US40 billion in combined orders with Iranian carriers.

Airbus had delivered three of its 100 planes ordered by Iran Air before the US decision. These are worth around $US600 million at list price. No Boeing aircraft have gone to Iran under contracts announced with Iran Air and Iran Aseman Airlines.

In other news, Walt Disney fell 2% after chief executive Robert Iger expressed confidence that his company would prevail in its bid for key assets of 21st Century Fox, despite recent moves by Comcast to make a competing offer.

Mr Iger said he was “confident the assets we are in the process of acquiring” would easily fit within Disney once the deal was approved.

Disney reported a strong second quarter result with net income rising 23% to $US2.94b. The hit performance of Black Panther and an improvement in business at its parks and resorts drove overall revenue up 9% to $US14.5b.

Walmart shares fell 3% after the saying its $US16b acquisition of 77% of Indian e-commerce firm Flipkart Group would hurt profits.

The Stoxx Europe 600 climbed 0.6%, supported by gains in oil-and-gas companies. France’s CAC 40 rose 0.2%, Germany’s DAX was up 0.2% and the UK’s FTSE 100 surged 1.3%.