Trading Day: $100 oil bites

By Jamie McGeever

ORLANDO, Florida, Sept 9 (Reuters) - Stocks around the world fell on ‌Wednesday as entrenched conflict in the Middle ​East pushed oil prices ​above $100 a barrel, while bond yields rose to fresh multi-year highs as investors reacted negatively to the U.S. Treasury's plan to triple bond buybacks.

In my column today, I look at what might replace the Japanese yen as the funding currency of choice in global FX carry trades. Swissie? Loonie? Euro? There's no obvious candidate.

Today's Key Reads

• Iran said on Wednesday it had attacked ‌10 ships near the Strait of Hormuz after the U.S. sank five Iranian oil tankers, in the biggest declared wave of tit-for-tat attacks on shipping by both sides ⁠since the start of the six-month-old war.

• EXCLUSIVE - AI agents unleashed by OpenAI used more than 10 previously undisclosed websites for unsanctioned communications earlier this year, according to six sets of independent investigators and data reviewed by Reuters, showing that the agents’ rogue activity was wider ranging ‌than previously disclosed.

• The United States has banned a broad ‌swath of Canadian alcoholic beverages, motorcycles and dairy products from import, sharply escalating an already acrimonious trade spat.

• Even two wars and sky-high energy prices haven't cooled the world economy. Global growth is running hot into the second half of the year, forcing asset managers to find firebreaks while staying invested. Higher interest rates may be the only policy brake left, observes ROI's Mike Dolan.

• How much oil is flowing through ​the Strait of Hormuz? Traders, energy executives and government officials are all trying to figure it out — but are reaching wildly different conclusions. It is, however, increasingly clear that this mystery has introduced a residual risk premium into crude prices that could remain deeply entrenched for months. Analysis from ROI's Ron Bousso.

Today's Key Market Moves

• STOCKS: South Korea outperforms in Asia, +1.3%. Europe -1.4% to 1-month low. Big three U.S. indices all lower: S&P ⁠500 -0.5%, Nasdaq -0.6%, Dow -0.8%.

• SECTORS/SHARES: Every sector on the S&P 500 falls, except energy (+1). Industrials -1.5%, utilities -1.2%. Meta +6.6%, Apple -0.3% on launch of new foldable phone. Comcast -6.6%.

• FX: Dollar/yen hovers around 7-month low.

• BONDS: U.S., UK, European yields spike to multi-year highs. The highest U.S. 10-year yield in three years draws strong demand ​at 10-year auction — bid/cover highest in over a decade, according to Wrightson ICAP.

• COMMODITIES/METALS: Oil marches higher, Brent tops $100/bbl. U.S. diesel at record $5.94/gallon.

Today's Talking Points:

Our House

"I am the house now," U.S. Treasury Secretary Scott Bessent said on Tuesday. "And you can bet against me if you want." Bessent's eye-opening remarks were in reference to his knowledge ​of, and influence over, the Japanese yen. Remember, the U.S. jointly intervened with Japan to support the yen a few weeks ‌ago. Bessent's swagger here appears to be well-founded — for now at least — with the yen rallying strongly across the board. Of course, time will tell.

But it's a different story in the U.S. bond market, where Bessent is even more active, trying to get longer-end yields down. Treasury on Wednesday said it will buy back up to $6 billion of ⁠long-dated bonds on Thursday, three times its last buyback. But yields leaped to new, historic highs on the announcement. The U.S. bond market is big, there are big bets being made. Again, time will tell. But the house may not always win here.

High energy

Brent crude oil is back above $100/bbl, WTI isn't far behind and is at a 3-month high. Oil is now up 50% on the same period a year ago. Meanwhile, U.S. gasoline prices are comfortably above $4/gallon, and diesel is at a record $5.94/gallon. War in ⁠the Middle East is spreading, and there's little to suggest peace, resolution or ceasefire are anywhere close on the horizon.

Puzzling questions from all this are: why isn't the economy rolling over, and will it ever? Of course, the economy is much less ​energy-intensive now than it was in years gone by, and as we are seeing elsewhere, many traditional macro models, rules of thumb, and correlations have broken down since the COVID-19 pandemic. High energy costs are one of the factors lifting bond yields, and stocks may now be feeling the heat. Are the scales beginning to tip?

The fold rush

Apple shares have performed reasonably well this year, outperforming all of its "Magnificent 7" peers except Nvidia. Investors have cheered Apple's conservative approach to borrowing — it has eschewed the ‌debt issuance binge many of its peers have undertaken to fund the AI buildout. Apple's market cap briefly topped $5 trillion in July, becoming only the second company to achieve that milestone after Nvidia.

But doubts persist around new products and pricing. If the initial share price move on Wednesday following the launch of the company's foldable ‌phone called "Duo" is any indication, these doubts aren't lifting any time soon. The cheapest Duo will be $1,999, and that's not cheap. Shares initially fell more than 2% on the unveiling, but recouped most of these losses to end down only 0.3%. That still lagged ⁠other Mag 7 and Big Tech stocks, however.

What could move markets tomorrow?

• Germany CPI ‌inflation (August, final)

• European Central Bank interest rate decision

• U.S. PPI inflation (August)

• U.S. ​weekly jobless claims

• U.S. Treasury sells $22 billion of 30-year bonds at auction

Want to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here. Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

(Reporting by Jamie McGeever; ‌Editing by Nia Williams)

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