By Rae Wee SINGAPORE, March 11 (Reuters) - Shares steadied on Wednesday following a brief retreat in oil prices, but markets remained anxious as contradictory signals from the U.S.-Israeli war on Iran
Stocks dip, Treasury yields jump as oil pushes higher
Market Reactions to Inflation and Oil Price Surge
By Lawrence Delevingne and Amanda Cooper
BOSTON/LONDON, March 11 (Reuters) - Global shares fell and benchmark Treasury yields spiked on Wednesday after data showed U.S. inflation picked up as expected while oil prices resumed their climb as the U.S.-Israeli war on Iran dragged on.
U.S. Inflation Data and Market Response
Data from the Labor Department showed the consumer price index rose 0.3% in February, in line with forecasts and above January's 0.2% increase. The CPI rose 2.4% in the year to February while the core rate, which excludes food and energy prices, rose 2.5%, both in line with forecasts.
Wall Street's main stock indexes finished flat to lower. The Dow Jones Industrial Average fell about 0.6%, while the S&P 500 and the Nasdaq Composite were little changed.
Impact of Middle East Conflict on Inflation
The consumer price report did not capture the steep rise in gasoline and other items since the outbreak of war in the Middle East 12 days ago. Markets already show traders believe there is a rising chance that most central banks' next move on interest rates will be to hike.
"February's inflation numbers were heading in the right direction, but then along came the conflict in the Middle East and now the path is changing. Instead of deflation from energy, we will get inflation. Food prices could show signs of inflation acceleration as the fertilizer market is in chaos," Annex Wealth Management chief economist Brian Jacobsen said.
Oil Prices and Global Market Performance
Oil prices settled up nearly 5% on Wednesday on supply disruption fears, and analysts said the International Energy Agency's proposal for a record release of oil reserves is inadequate to ease those worries. Brent futures LCOc1 rose $4.18, or 4.8%, to settle at $91.98 a barrel, while U.S. West Texas Intermediate CLc1 ended the session up $3.80, or 4.6%, at $87.25 a barrel.
The MSCI All-World index fell about 0.2% and European shares slid, leaving the STOXX 600 down 0.6%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1% higher.
Energy Trade Risks Amid Middle East Tensions
Investors remain on edge as the Middle East conflict threatens to freeze global energy trade and ignite a price shock - a risk that world leaders are scrambling to address.
Strait of Hormuz and Oil Supply Threats
The immediate concern is when the Strait of Hormuz, a critical artery for 20% of global fuel supply, will again be safe for traffic as threats to vessels have deterred ships from entering it since the outbreak of the conflict. Three more vessels have been struck by projectiles, while Iran's military command said on Wednesday that the world should be prepared for oil to hit $200 a barrel.
Central Bank Responses and Currency Movements
European Central Bank President Christine Lagarde said on Tuesday the ECB would do everything to keep inflation under control and to avoid a repeat of the 2022 energy price shock.
The euro fell around 0.34% to $1.157, while the pound was little changed on the day at $1.341. The yen weakened further, leaving the dollar up 0.6% at 158.9.
BOND YIELD SURGE ADDS TO OVERHEATING CONCERNS
U.S. Treasuries fell again on Wednesday, pushing the yield on the benchmark 10-year note up 9 basis points to 4.226%.
Private Credit and Financial Sector Jitters
The surge in bond yields this week, due to fears of sustained energy-price pressures, has added to concerns over other market segments being at risk of overheating, such as private credit and the vast investments in AI projects.
Investors were also reminded of vulnerabilities within private credit after a person close to JPMorgan Chase <JPM.N> said on Wednesday the bank had marked down the value of some loans held by private-credit groups and was tightening lending to the sector. Publicly traded asset managers such as Blue Owl Capital <OWL.N> and Ares Management <ARES.N> lost ground on Wednesday as jitters were felt across the financial sector.
(Reporting by Lawrence Delevingne in Boston and Amanda Cooper in London. Additional reporting by Rae Wee in Singapore; Editing by Pooja Desai, Bernadette Baum, William Maclean, Nick Zieminski and Aurora Ellis)
