Oil surge keeps markets uneasy as ECB hikes with hawkish tilt

Oil prices rose to their highest level since March as investors remained on edge about tensions in the Middle East, with reports that Iran is producing ballistic missiles again, while US stockpiles shrank and OPEC data showed Saudi Arabian production tumbled last month.

The European Central Bank raised its benchmark interest rate as expected and signalled more increases are on the way as the latest energy crunch threatens to revive broader inflation, while investors are waiting for US consumer price data for more clues on whether the Federal Reserve will lift rates next week.

Stocks on both sides of the Atlantic were weaker as investors fretted about renewed inflation pushing up interest rates, with the International Business Machines, Nvidia and Amgen at the bottom of the leaderboard for the Dow Jones Industrial Average.

And Anthropic accused China’s Moonshot AI of routing user requests through the US firm’s Claude chatbot and passing the answers off as its own.

A lot of energy

Brent crude oil futures jumped 6% to US$107.30 a barrel at 7am in Auckland amid fears the latest hostilities in the Middle East would drag on longer than anticipated. The Wall Street Journal reported Iran resumed production of ballistic missiles, unwinding what was touted by the US and Israel as a major achievement of the conflict.

Meanwhile, US Energy Information Administration figures showed US crude oil stockpiles declined last week amid record production at American refineries, which were operating near full capacity.

And OPEC figures showed Saudi production tumbled by 1.9 million barrels a day in August to 6.24 million barrels.

The elevated oil prices continued to rock financial markets, with stocks on Wall Street lower and the yield on 10-year US treasuries climbing near a three-year high and were up 10 basis points at 4.95% at 7am. New Zealand’s equivalent bond was at 4.88%. The S&P 500 and Nasdaq Composite were both down 0.6% in late trading, while the Dow declined 0.7%.

“Selling is broad, with investors increasingly focused on the impact of higher energy costs on inflation, interest rates and corporate margins,” Moomoo market strategy consultant Greg Boland said in a note. “The fact that yields are rising despite official efforts to support the long end of the market highlights just how strong the underlying pressure has become.”

US producer prices rose in line with expectations in August, with upcoming consumer inflation figures under a close watch for signs of whether the Fed would hike the federal funds rate next week. The CME FedWatch tool shows bond traders are pricing in a 73% chance of an increase.

More to come

Across the Atlantic, the ECB raised its key rate a quarter-point to 2.5%, saying the Middle East conflict continued to add inflation pressure, with consumer prices expected to keep rising at an elevated pace for some time. Bloomberg reported that ECB officials expected further hikes would be needed, with next month’s meeting a possibility.

The UK’s FTSE 100 fell 0.6%, while Germany’s DAX dropped 0.8% and France’s CAC 40 declined 0.5%.

Nestlé chief executive Philipp Navratil told Reuters that the Middle East conflict continued to push up costs for its suppliers, and that the food giant would raise prices, change product formulas and cull product lines.

Meanwhile, Anthropic launched a broadside at Kimi-3 developer Moonshot AI, accusing the Chinese firm of routing user requests through Anthropic’s Claude model without telling people, and passing off answers as its own.

OpenAI launched a new version of ChatGPT for financial services professionals, and DeepSeek rolled out a model that charges as little as a fraction of a cent per million tokens, while Nikkei Asia reported Chinese chipmaker ChangXin Memory Technologies’ profit margin eclipsed South Korean and US memory chip makers, such as SK Hynix and Micron Technology.

The subdued tone is set to flow through the antipodes, with Australian futures pointing to a 1.1% slide for the S&P/ASX 200 index when trading opens across the Tasman. The kiwi dollar dropped to 57.97 US cents at 7am from 58.49 cents yesterday, with the greenback buoyed by higher bond yields.

Local data today include the BusinessNZ-Bank of New Zealand performance of manufacturing index.

Moomoo’s Boland said New Zealand’s S&P/NZX 50 index would likely open weaker, with the soft lead from Wall Street and Australian futures.

“For New Zealand investors, higher oil, higher US yields and a weaker kiwi create a challenging combination,” he said.

Reporting by Paul McBeth. Image from Zbynek Burival on Unsplash.