Oil Falls 5% as Gulf Lull Eases Inflation Fears, Markets Rise

SYDNEY – A pause in Gulf fighting dragged oil prices lower on Monday, giving share markets and bonds a guarded lift ahead of a week packed with central bank meetings and earnings reports.

Brent crude slid 5.2% to $91.73 a barrel. U.S. crude dropped 5.4% to $84.45. The slide followed Iran's statement on Sunday that it would halt attacks as long as the United States did the same. The U.S. military has reportedly grown concerned about dwindling ammunition supplies.

Yemen's Iran-aligned Houthis still struck Saudi oil installations along the Red Sea coast, threatening another waterway vital to global oil trade.

"Net, it looks as if developments in the Middle East have moved in a positive direction over the weekend, adding some credibility to the notion that oil above $100 a barrel seems to induce de-escalatory behaviour from both sides," said Sally Auld, group chief economist at NAB.

The pullback in oil provided relief from inflation fears. Markets slightly pared the probability of rate hikes from the Federal Reserve, which meets Wednesday. Markets imply around a one-in-three chance of a rate rise, though most analysts doubt Chair Kevin Warsh would favour a move.

"Investors see the outcome of the July meeting as unusually uncertain, likely because the Fed has been split recently, Warsh's own position remains unclear, and some of the re-escalation with Iran occurred during the blackout period," noted analysts at Goldman Sachs. "There will likely be at least one dissent in favour of a hike, but most voters appear unlikely to push for a move this week after the softer June inflation data."

The Bank of England meets Thursday, and the Bank of Japan on Friday. Both are expected to hold steady while remaining cautious on inflation.

Equities took comfort in the drop in oil and yields. S&P 500 futures rose 0.7%, Nasdaq futures jumped 1.1%. In Europe, EUROSTOXX 50 futures gained 0.4%, DAX futures rose 0.6%, and FTSE futures went flat. Japan's Nikkei edged up 0.1%, while South Korea's chip-heavy index eased 1.1%. MSCI's broadest index of Asia-Pacific shares outside Japan held steady. Chinese blue chips firmed 0.4% as chipmaker CXMT Corp surged 470% in its Shanghai trading debut after raising $8.6 billion in Asia's biggest IPO this year.

About one-third of S&P 500 companies report this week, with earnings on track to show a 26.5% increase from a year ago, according to LSEG IBES data. With expectations high and mounting unease over the cost of AI capex, even blockbuster results may not be enough to please investors.

The massive sums involved were underlined by a WSJ report that Nvidia is in talks to provide a roughly $250 billion backstop for OpenAI as part of a data center project. NVDA stock page

Reporting companies include Microsoft, Meta Platforms, Amazon, Apple and Qualcomm, along with a host of industrial, defence and healthcare stocks. MSFT stock page

Data highlights include U.S. advance Q2 GDP, where growth is seen picking up to an annualised 1.5%. The June PCE price index, personal income and consumption, weekly jobless claims, Q2 employment cost index and July Michigan consumer sentiment round out the diary. The euro zone's schedule includes flash Q2 GDP, July economic sentiment, consumer confidence, flash inflation and June unemployment.

The pullback in oil helped 10-year Treasury yields fall 4 basis points to 4.63%, and nudged the dollar broadly lower. The euro added 0.3% to $1.1408. The dollar dipped 0.2% on the yen to 163.54. The Singapore dollar nudged up after the country's central bank unexpectedly tightened monetary policy by allowing a slightly faster appreciation in the currency.

In commodity markets, the drop in yields helped non-interest-paying gold climb 1.3% to $4,103 an ounce. gold profile crude oil profile