Brent crude above US$80/bbl as US resumes Hormuz Strait blockade

Oil prices rose as US President Donald Trump reimposed a blockade on the Strait of Hormuz and said the US would charge 20% on all cargo shipping through the channel in compensation as America and Iran continue to trade strikes in the Middle East.

Stocks on Wall Street sank amid the rising energy costs, while bond traders ramped up their bets on the Federal Reserve hiking interest rates after governor Christopher Waller said an increase would be on the table if this week’s inflation data showed price pressures remained firm.

South Korea’s SK Hynix dropped back to earth in its second day of trading in the US, with artificial intelligence linked companies such as Nvidia, Sandisk and Micron Technology declining as investors shift out of tech stocks, even as Taiwan Semiconductor Manufacturing Co reported a jump in quarterly sales.

And Australian futures are pointing to a soft start to the day for the ASX, while the New Zealand Institute of Economic Research’s latest quarterly confidence survey is due today and Reserve Bank chief economist Paul Conway will deliver a speech on inflation.

Energy pressure

Brent crude oil futures jumped 9.1% to US$82.93 a barrel at 7am in Auckland as US President Trump announced a new blockade of the Strait of Hormuz as the US and Iran continue to trade strikes, keeping the threat of inflation to the fore in global markets.

Trump said the US would charge a 20% levy on the cargo of vessels passing through the channel.

“With Trump, one never quite knows how seriously to take such pronouncements, but Gulf allies would not be pleased with this plan, and it almost certainly violates international law,” Bank of New Zealand senior markets strategist Jason Wong said in a note. “It remains to be seen whether the plan will stick – probably not – and whether it is merely a negotiating tactic aimed at getting Iran to pause its military strikes on shipping in the area.”

Meanwhile, the Financial Times reported that the United Arab Emirates’ DP World was considering building a new port and container terminal on the east coast to bypass the Strait of Hormuz.

The yield on 10-year US treasuries rose 2 basis points to 4.61%, while the CME FedWatch tool was pricing in a 76% chance of the Fed raising the federal funds rate in September, amid the rising fuel prices and as Fed governor Waller said an increase should be on the table if inflation pressures remain sticky in this week’s data.

Stocks on Wall Street declined with investors continuing to move out of AI-linked tech stocks. The tech-heavy Nasdaq Composite dropped 1.5% in late trading, while the Dow Jones Industrial Average declined 0.3%, with Nvidia, Boeing and Honeywell International leading the blue-chip index lower.

SK Hynix American depositary receipts sank 8.6% after their strong debut on Friday, following the slump in Asian tech stocks on Monday.

TSMC reported a 36% increase in quarterly revenue, meeting elevated expectations, while Intel started a €5 billion upgrade to its Irish facilities to boost European production and Meta Platforms committed to a US$40 billion data centre in Louisiana.

And Reuters reported that the White House plans to bring utilities and data centre developers together to pledge that the rapid growth in AI-backed electricity demand won’t drive up power prices for households and businesses.

In the courts

Paramount Skydance’s US$110 billion acquisition of Warner Bros Discovery is facing a legal challenge by California and 11 other states, which claim the deal would harm theatres and television distributors and ultimately hurt consumers and workers.

Meanwhile, a federal judge ruled the Trump family acted in bad faith in taking a US$10 billion lawsuit against the Internal Revenue Service, and referred Trump’s lawyer Alejandro Brito to Florida bar authorities to decide whether any disciplinary action was appropriate.

Across the Atlantic, stock markets nudged higher, with the UK’s FTSE 100 marginally higher, Germany’s DAX up 0.2% and France’s CAC 40 gaining 0.3%.

Germany’s automaker Volkswagen said it might have to lay off 50,000 people to bring its costs in line with rivals, while the UK and Switzerland completed negotiations to upgrade a free trade agreement.

The subdued tone is set to continue in the antipodes, with Australian futures pointing to a 0.1% dip for the S&P/ASX 200 index when trading opens across the Tasman, while the kiwi dollar traded at 57.53 US cents at 7am in Auckland from 57.58 cents yesterday.

Local data today include travel and migration figures for the month of May from Statistics New Zealand and the NZIER’s quarterly survey of business opinion for June.

Green Cross Health is holding its annual meeting in Auckland today, where shareholders will vote on approving the $270 million sale of its medical business to Tend Health.

Reporting by Paul McBeth. Image from Zetong Li on Unsplash.