Despite the IEA's announcement of a record crude oil reserve release plan and Trump's attempt to downplay the threat of mines in the Strait of Hormuz while hinting again that the war would soon end, the market's concerns over energy supply disruptions remained unabated. Crude oil prices rebounded in a 'V' shape during the day, pressuring U.S. stocks and leading to a sell-off in U.S. Treasuries. Expectations for a Federal Reserve rate cut further contracted. $Bitcoin (BTC.CC)$ Stabilized at $70,000.
Ron Albahary, Chief Investment Officer of Laird Norton Wetherby, stated that this decision “does not address other issues that will impact the global economy.”
He highlighted that refined oil products transported through the Strait of Hormuz, such as jet fuel, remain a potential risk.
“The market is now contemplating one question: where is the ‘exit path’ for this conflict?” Albahary remarked. “Both sides are taking hardline stances, making it difficult to foresee a positive resolution in the short term.”
The U.S. President stated on Wednesday that there were “almost no more targets left to strike” within Iran, signaling that the U.S. military operation against Iran was “coming to an end.” He made similar remarks on Tuesday.
Emmanuel Cau, Head of European Equity Strategy at Barclays, wrote in a report on Wednesday: “Trump’s indication that the war may soon end following sharp fluctuations in oil prices might suggest he has reached his own ‘pain threshold.’ The longer the surge in oil prices persists, the greater the downside risks to corporate earnings and valuations.”
Crude oil movements on Wednesday continued to dominate risk sentiment, while the relatively mild U.S. inflation data for February failed to boost U.S. stocks. The S&P 500 index edged down 0.08%, and the Dow fell 0.6%. However, the Nasdaq managed to close up 0.08% due to a late-session rally.
The IEA approved the release of a record amount of crude oil reserves, with the 400 million barrels being more than double the 2022 level. Fatih Birol, Executive Director of the International Energy Agency, did not disclose key details such as the pace, time frame, or geographic distribution of the release, all of which are crucial for energy markets.
Homayoun Falakshahi, a senior analyst at Kpler, stated:
The devil is in the details, and the key issue lies in the speed of release.
Following the announcement, oil prices briefly retreated but then rebounded higher. Ellen Zentner from Morgan Stanley Wealth Management stated:
Despite the prospect of releasing oil reserves, ongoing uncertainty means that oil prices still face persistent upward risks, implying the Federal Reserve will remain cautious about interest rate cuts.
Analysts also noted that the market had anticipated the news of the oil reserve release, with related reports on Tuesday evening already having pushed oil prices lower. After the IEA's official announcement, the 'sell-the-news' logic drove oil prices to rebound again. Volatility indicators for oil subsequently rose back to near the highs seen since the outbreak of the conflict.
As a target favored by retail investors, $United States Oil Fund LP (USO.US)$ the daily trading volume exceeded $7.5 billion once again.
The U.S. CPI rose 2.4% year-over-year in February, with the core CPI up 2.5%, marking the smallest increase in nearly five years. Brian Jacobsen of Annex Wealth Management stated:
The direction of February's inflation data is correct, but the Middle East conflict has followed, altering the trajectory.
Market concerns that inflation will be 'higher for longer' have led traders to expect only one rate cut by the Federal Reserve this year. Seema Shah of Principal Asset Management noted:
Historically, the Federal Reserve has chosen to overlook energy price shocks, but with inflation having remained above target for nearly five consecutive years, doing so this time may prove more challenging.
She maintains her baseline forecast of two Fed rate cuts in the second half of this year, but emphasized that if energy prices remain elevated and conflicts persist, this projection faces downside risks.
Expectations of reflation weighed on U.S. equities during the session, with the Dow Jones Industrial Average leading declines, while the Nasdaq Composite narrowly turned positive in late trading. The Mag 7 stocks outperformed the remaining 493 constituents of the S&P 500 for a third consecutive day, buoyed by Oracle’s strong earnings report boosting sentiment in the AI sector, but still closed lower overall.
Data from Goldman Sachs’ trading desk showed overall market activity was lower than in the previous two weeks, with trading volumes down 14% compared to the 10-day average. Hedge funds were net buyers overall, while long-term institutional investors continued to be net sellers.
Notably, private credit-related stocks continued to decline. JPMorgan has notified relevant private credit institutions to reduce the collateral value of certain loans in their portfolios, primarily concentrated in software industry firms. Meanwhile, Cliffwater, a private credit fund, reportedly faced investor redemptions exceeding 7%.
U.S. Treasury yields moved higher across the board by 5 to 8 basis points on the day, with particularly weak performance at the long end. The 30-year yield climbed approximately 10 basis points for the week, while the 10-year Treasury yield rose 6.8 basis points and has cumulatively increased over 30 basis points since the Iran conflict began.
According to Goldman Sachs analysis, the tightening effect of the conflict on financial conditions is being reflected through a broad sell-off in Treasuries and a strengthening U.S. dollar. Goldman Sachs pointed out that prior to the outbreak of the conflict, investors were generally long 2-year and 5-year Treasuries to bet on more rate cuts, and the recent rise in yields caused some losses, though most chose to add positions on dips.
$USD (USDindex.FX)$The US Dollar Index rose by 0.44%, approaching the 99 mark, recovering this week's losses. The AUD/USD pair increased by 0.5%, touching 0.7186 during the session, reaching its highest level since June 2022.
Under pressure from a stronger US dollar, spot gold prices fell to a new low for the week, with intraday losses reaching 0.3%, while spot silver plummeted over 3%.
US stocks remained under pressure on Wednesday, with the S&P 500 Index edging down 0.08%, and the Dow Jones Industrial Average declining by 0.6%. The consumer staples sector dropped more than 1.3%, leading declines among US equity sector ETFs, while the energy sector ETF surged approximately 2.5%. Large-cap technology stocks outperformed the broader market today, with Oracle’s shares surging over 9% after its earnings report.
U.S. Equity Benchmark Indices:
The S&P 500 Index closed down 5.68 points, or 0.08%, at 6775.80 points.
The Dow Jones Industrial Average closed down 289.24 points, or 0.61%, at 47417.27 points.
The Nasdaq Composite Index closed up 19.031 points, or 0.08%, at 22716.135 points. The Nasdaq 100 Index closed up 8.535 points, or 0.03%, at 24965.006 points.
The Russell 2000 Index closed down 0.20% at 2542.90 points.
The VIX Volatility Index closed down 2.81% at 24.23.
U.S. sector ETFs:
The consumer staples sector closed down 1.32%, while regional bank ETFs and banking ETFs declined by at least 1.13%, and the financial sector ETF fell by 0.84%. In contrast, the technology sector ETF closed up 0.48%.
Mag 7:
The Mag 7 index rose by 0.26% to close at 196.20 points.
Tesla closed up 2.15%, NVIDIA, Google A, and Meta gained up to 0.69%, while Apple, Microsoft, and Amazon fell by as much as 0.78%.
Semiconductor stocks:
The Philadelphia Semiconductor Index rose 0.63% to close at 7914.565 points.
Taiwan Semiconductor rose 2.15%, and AMD increased by 0.79%.
Chinese concept stocks:
The Nasdaq Golden Dragon China Index fell 0.77% to close at 7167.45 points.
Among popular Chinese stocks, Tencent fell 4%, Nio dropped 3.6%, Pony AI declined 3%, Meituan lost 2.4%, PDD Holdings slipped 1.8%, BYD gained 1.1%, JD.com rose 1.4%, Xpeng increased by 2.3%, and Li Auto advanced 3.1%.
Other individual stocks:
Berkshire Hathaway Class B shares fell 0.12%.
Oracle surged 9.18%, while Broadcom, Salesforce, Adobe, and Qualcomm fell by up to 0.80%, and Netflix dropped 2.11%.
Storage-related stocks advanced, with SanDisk gaining nearly 6% and Micron Technology rising over 3%. Gold stocks retreated, with Harmony Gold falling nearly 11%, Coeur Mining dropping over 4%, and Hecla Mining declining more than 3%.
South Korean concept rises.
Three are bullish on South Korea.$Direxion Shares Etf Trust Direxion Daily So Korea Bull 3X Shs (KORU.US)$ rose over 5%.
The blue-chip index of the Eurozone fell by more than 0.7%, with defense contractor RHM dropping 8% and SAP declining over 2.4%. Germany's stock market closed down nearly 1.4%, while Italy’s banking sector fell more than 0.9%.
Pan-European stocks:
The European STOXX 600 Index closed down 0.59% at 602.54 points.
The STOXX 50 Index of the Eurozone closed down 0.73% at 5794.68 points.
National indices:
Germany’s DAX 30 Index closed down 1.37% at 23,640.03 points.$iShares MSCI Germany ETF (EWG.US)$
France’s CAC 40 Index closed down 0.19% at 8,041.81 points.$iShares MSCI France ETF (EWQ.US)$
The UK FTSE 100 Index closed down 0.56% at 10,353.77 points.$Ishares Inc Msci United Kingdom Etf (New) (EWU.US)$
Sector and Stock Performance:
Among the blue-chip stocks in the Eurozone, RHM (Rheinmetall) fell by 8.02%, Sap (SAP SE) dropped by 2.45%, Siemens Energy declined by 1.97%, and Ferrari experienced a decrease of 1.96%, ranking as the fourth largest drop.
Among all the components of the European STOXX 600 Index, Eurazeo SE fell by 11.61%, CVC Capital dropped by 8.86%, with RHM recording the third largest decline, followed closely by Frontline, which fell by 7.63%.
The Abu Dhabi Murban crude oil futures in the Middle East fell by 1.17% to settle at $98.41 per barrel, having dropped to $95.09 per barrel at 21:45 Beijing time.
Crude Oil:
WTI crude oil futures for April settled at $87.25 per barrel.
Brent crude oil futures for May settled at $91.98 per barrel.
Natural Gas:
NYMEX natural gas futures for April settled at $3.2090 per million British thermal units. $United States Natural Gas (UNG.US)$
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Editor/Liam
