Oil Rises as Strait of Hormuz Limited, Global Markets Still Cautious

Illustration of a tanker. (Pexels)

JAKARTA - The global market has not had a single direction when peace negotiations in the Middle East have not yielded concrete results. Investors are still cautious, while oil prices are rising because tanker traffic in the Strait of Hormuz remains limited.

Anadolu Agency, quoted Tuesday, August 4, reported that the escalating geopolitical tensions last week had indeed begun to subside. However, there has been no strong signal towards a lasting peace. Tehran's attitude is also considered unclear.

US President Donald Trump said negotiations with Tehran continued on Tuesday and were still ongoing. He said Iran gave conflicting statements about the talks.

Trump said Washington was talking to Tehran with the support of Saudi Arabia, the United Arab Emirates, Qatar, and other countries. He also warned that this was the last chance to reach a good deal.

Trump admitted that he had prepared one of the biggest attacks since World War II. The plan was stopped after the Gulf countries who facilitated the talks contacted him by phone.

In the energy market, oil began to rise because the flow of tankers through the Strait of Hormuz was still limited. The Strait of Hormuz is an important route for oil shipments from the Gulf region.

Brent crude for October delivery was up 1.5 percent at $85 a barrel. Gold was up 0.2 percent at $4,062 an ounce.

This condition also makes the expectations of the United States monetary policy more complicated. The Fed kept interest rates last week, but three members voted for a rate hike.

The attitude strengthens market speculation that a more hawkish move could emerge at the next meeting. Hawkish means the central bank's tendency to take a tighter policy, usually by raising interest rates.

However, US growth data was below expectations. The Personal Consumption Expenditures or PCE price index also showed signs of slowing price increases.

PCE is an inflation indicator that the Fed monitors. The data makes the expectation of a rate hike not entirely strong.

Markets still expect the Fed to raise rates at least one more time by the end of the year. However, Friday's nonfarm payrolls data will go a long way in determining the direction of those expectations.

Nonfarm payrolls is a data on the number of non-farm workers in the US. This data is often used by the market to read the strength of the economy and the direction of Fed policy.

On Wall Street, sentiment was helped by Palantir's performance. The artificial intelligence (AI) data analytics developer posted generally positive financial results and raised revenue projections.

SpaceX and chipmaker AMD are scheduled to report earnings on Tuesday.

US economic data also gave strong signals. The Institute for Supply Management's manufacturing PMI rose to 55.6 in July, exceeding expectations.

PMI is an index that reads business activity. A figure above 50 indicates expansion.

The yield on 10-year US government bonds was at 4.7 percent on Tuesday. The US Dollar Index was still stable around the level of 100.

At Monday's close, the S&P 500 rose 1.48 percent, the Nasdaq gained 2.13 percent, and the Dow Jones Industrial Average added 1.32 percent to a record high. The main US indices also opened positively on Tuesday.

European stocks moved higher on Tuesday, except for the UK. Investors still hope that Middle East tensions could ease.

The eurozone manufacturing PMI rose to 51.9 in July. It was the fastest increase in the last four and a half years. On the other hand, the UK manufacturing PMI fell from 52.5 in June to 51.9, the lowest level in four months.

On Monday, the UK FTSE 100 fell 0.1 percent. The French CAC 40 rose 0.11 percent, the Italian FTSE MIB 30 rose 1.34 percent, and the German DAX 40 rose 1.45 percent.

In Asia, stock markets tend to weaken except for China. Investors are still cautious about entering the technology stocks again due to concerns about high valuations.

The Japanese yen briefly touched its strongest level against the US dollar in nearly three months on Monday after joint intervention by Washington and Tokyo.

The U.S. dollar fell to 155.2 against the yen on Monday, its lowest since May 6. On Tuesday morning, the exchange rate rose 0.3 percent to 157.6.

Anadolu Agency noted that ahead of Tuesday's close, Japan's Nikkei 225 fell 0.5 percent, South Korea's Kospi weakened 1.5 percent, and Hong Kong's Hang Seng fell 0.8 percent. China's Shanghai Composite was still up 0.2 percent.