Stocks rise, oil falls as Middle East fears ease, central banks in focus

NEW YORK/LONDON :U.S. stock indexes climbed and oil fell from last week’s highs on Monday after conflict between Israel and Iran left crude production and exports unaffected, while investors stayed braced for a week packed with central bank meetings.

Geopolitics loomed large as Group of Seven leaders began annual talks in Canada. Iranian strikes on Israel and a promise of retaliation were followed by a Wall Street Journal report that Tehran was seeking an end to hostilities, against a backdrop of existing international strains prompted in part by Donald Trump’s tariff policy.

Markets took comfort after a torrid session on Friday saw oil surge 7 per cent and Wall Street indexes lose more than 1 per cent.

At 10:48 a.m. the Dow Jones Industrial Average was 1.17 per cent higher, the S&P 500 gained 1.16 per cent and the Nasdaq Composite was also up 1.51 per cent.

U.S. crude fell 3.44 per cent to $70.47 a barrel and Brent fell to $71.63 per barrel, down 3.5 per cent on the day.[O/R]

“Markets came to the conclusion that for now, the Israeli/Iranian conflict is localized,” Andy Brenner, Head of International Fixed Income at National Alliance Securities, said in a note to clients.

Any sustained inflationary impact from the oil price outlook could make the Federal Reserve more nervous about giving too many hints at its Wednesday meeting about interest rate cuts later in the year.

Investors still expect two cuts by December, with a first move in September seen as most likely.

“The key is how much flexibility the Fed thinks it has. We’ve been pleasantly surprised we’ve not yet seen inflationary pass-through from the tariffs,” said Ben Laidler, head of equity strategy at Bradesco BBI.

U.S. Treasury yields fell after the report of Iran’s outreach to Israel, with the 10-year notes yielding 0.9 basis points to 4.415 per cent, from 4.424 per cent late on Friday.

MSCI’s gauge of stocks across the globe marched 1.09 per cent higher after the U.S. open.

Earlier in the trading day, Europe’s STOXX 600 had been boosted by a rebound in travel stocks and Gulf stocks also recovered. [.EU]

Chinese blue chips gained after data showed rising retail sales and industrial output in line with expectations.

MORE DATA, MEETINGS COMING

U.S. retail sales data is due on Tuesday and may show a pullback in autos dragging the headline number down even as core sales edge higher. A market holiday on Thursday means weekly jobless claims figures are out on Wednesday.

Central banks in Norway and Sweden also meet this week, with the latter expected to trim rates.

The Swiss National Bank meets on Thursday and is considered certain to cut by at least a quarter point to take rates to zero, with some chance it may go negative given the strength of the Swiss franc.

The Bank of Japan holds a policy meeting on Tuesday and is widely expected to hold rates at 0.5 per cent, while leaving open the possibility of tightening later in the year.

There is also speculation it could consider slowing the rundown of its government bond holdings from next fiscal year.

German government bond yields fell on Monday, with the benchmark 10-year Bunds yielding 2.52 per cent, from 2.536 per cent late on Friday.

The calmer mood across markets saw some of gold’s safe-haven bid reverse and it was down 1.04 per cent to $3,396.59 an ounce..