Oil prices jump, Wall Street under pressure with Hormuz, inflation in focus

NEW YORK/LONDON - Wall Street indexes retreated and oil prices rallied over 4% on Monday, with markets focused on the outlook for Federal Reserve interest rates and on a potential deal between the U.S. and Iran to reopen the Strait of Hormuz.

Iran insisted that the United States must satisfy several demands before the Strait can reopen, fueling uncertainty.O/R

Gold drifted toward a seven-week high as inflation data loomed.

On Wall Street, the Dow Jones Industrial Average .DJI fell 0.25% to 53,901.23, the S&P 500 .SPX lost 0.11 to 7,749.16 and the Nasdaq Composite .IXIC was down 0.42%, at 26,577.28.

U.S. stocks had hit a record high on Friday after a weaker-than-expected jobs report caused traders to cut their bets on Fed rate hikes.

Europe's benchmark stock index .STOXX was little changed near a record high as investors paused ahead of a week packed with economic data.

The MSCI index of global stocks .MIWD00000PUS was little-changed in a choppy session.

Iran said on Sunday that a deal with Oman about transit through the Strait of Hormuz was in its final stages, but reiterated that the waterway would only reopen once the United States met other conditions. Those include compensation and an end to sanctions and military threats.

Brent crude futures LCOc1 rallied 4.61% to $87.40 per barrel, and U.S. crude CLc1 jumped 4.63% to $81.80.

The key event for markets this week is the U.S. inflation reading for July on Wednesday, which will impact Fed officials' thinking on rates. Investors will also be watching euro zone employment data and U.S. consumer price figures for clues on the interest rate outlook.

Economists polled by Reuters expect the consumer price index ‌to have risen ⁠3.4% year-on-year in data on Wednesday, compared with 3.5% the previous month.

"We are keeping our view of no hikes from the Fed for this year," said Mohit Kumar, a senior European economist at Jefferies, noting this week's inflation report is key.

"If oil prices remain contained and move lower from the current levels, that would prevent the need for the Fed to hike rates," Kumar said.

Asian shares rose, with MSCI's broadest index of Asia-Pacific shares outside Japan .MISX00000PUS closing up 0.61% at 1,628.74.

Emerging market stocks .MSCIEF rose 11.05 points, or 0.67%, to 1,668.91.

Earnings help power stocks

Stock markets around the world have hit record highs in recent weeks, boosted by strong corporate earnings.

Analysts at BofA said that with nearly 90% of S&P 500 results in, earnings per share were up 30% on the year after excluding investment gains at Alphabet and Amazon. A 76% EPS beat rate matched the strongest level since 2021.

Strategists at JPMorgan revised up their 2026 EPS estimate to $365, marking annual growth of 35%, and lifted their S&P 500 price target to 8,000 from 7,800. It is currently at 7,758.

Earnings are lighter this week, but include semiconductor company Applied Materials AMAT.O, networking equipment maker Cisco CSCO.O and cloud infrastructure technology company CoreWeave CRWV.O.

Bonds and currencies

The yield on benchmark U.S. 10-year notes US10YT=RR rose 4.25 basis points to 4.701%, with the market bracing for $125 billion in new issuance this week.

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.16% to 99.80, with the euro EUR= down 0.14% at $1.1542.

The Japanese yen JPY= weakened 0.83% to 159.12 per dollar, though investors were still wary of intervention.

Bank of Japan policymakers warned of mounting inflation risks that could require a faster-than-expected pace of interest rate increases, a summary of opinions at their July meeting showed, boosting the case for a September hike. — Reuters