Stocks drop as oil tops $100 and Goldman slides: Markets wrap

Oil jumped above $100 a barrel while stocks and bonds fell after President Donald Trump ordered a blockade of the Strait of Hormuz following the weekend’s deadlock in US-Iran peace talks. Goldman Sachs Group shares dropped in an underwhelming start to the earnings season.

The S&P 500 was poised to slid 0.6% at the open. Goldman retreated 4.5% in premarket trading as a revenue miss in fixed-income, currency and commodities outweighed a record haul from equities. Brent jumped 7.3% to trade above $102.

Bonds fell across the world as the surge in oil prices added to expectations of tighter monetary policy. The yield on two-year Treasuries moved two basis points higher to 3.82%. The dollar rose 0.3%, its biggest advance in more than a week. Gold traded moderately lower near $4,710 an ounce.

Shipments of oil and gas through the Hormuz strait remain in focus after Trump’s restrictions on vessels calling at Iranian ports threatened to deepen a global energy shock. If successful, the blockade would restrict the one Persian Gulf flow that has continued throughout the war, while Tehran’s warning to target vessels and ports in response amplifies the risks for other producers.

Even so, the relatively mild pullback in riskier assets suggested investors were cautiously optimistic that a resolution was still within reach.

“I was expecting much worse both for the equity market and oil prices this morning,” said Mary-Sol Michel, director of discretionary portfolio management at Swiss Life Banque Privée. “The market sees the blockade as a negotiation tool, but nonetheless, I feel the impact on stocks is quite modest.”

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With earnings season kicking off in earnest, investors are eager to hear from executives about risks stemming from the war, the disruptive impact of artificial intelligence and worries over private credit. Analysts project S&P 500 earnings will show roughly 12% annual growth for the first-quarter.

For Morgan Stanley strategist Mike Wilson, a strong earnings backdrop is protecting the S&P 500 from deeper losses, and he recommends that investors stand ready to add risk even if the Iran conflict continues.

In Europe, Hungary’s forint surged to a four-year high and local stocks hit a record after Prime Minister Viktor Orban lost Sunday’s election, with the opposition’s victory expected to help unlock billions of euros in European Union funding. Europe’s Stoxx 600 was 0.8% lower, tracking losses in the US and Asia.

The latest spike in crude, coupled with the marked rise in March US consumer prices, is shifting the bond market’s focus back to inflation. Japan’s 10-year yield climbed to the highest level since 1997 earlier on Monday before paring the move. In the US, money markets are pointing to less than a one-in-five chance of a rate cut by December.

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“Time is playing against markets as each day that goes by with oil prices this high weighs on global growth and pushes inflation,” said Gilles Guibout, head of European equities at BNP Paribas Asset Management. “It’s difficult to see how markets could stage a sustainable rebound without a sustainable solution to this crisis.”

What Bloomberg Strategists Say:

“Crude isn’t back to its March highs yet, whether you look at the generic prompt ticker or the specific front-month delivery dates for Brent or WTI. That would argue against a catastrophic lurch lower in stock prices.”

— Cameron Crise, Macro Strategist, Markets Live.

Corporate highlights:

Bill Ackman has kicked off formal marketing for the US initial public offering of his closed-end fund and his hedge fund, even as the Iran war hits dealmaking optimism.
Somnigroup International agreed to buy bedding company Leggett & Platt in an all-stock transaction worth about $2.5 billion.
Palantir Technologies shares rise more than 2% in premarket trading after Trump singled out the firm for its “great war-fighting capabilities and equipment.”
Sandisk Corp shares gain as the memory chipmaker is set to join the Nasdaq 100 index.
Dolce & Gabbana appointed former Gucci boss Stefano Cantino as co-chief executive officer following the departure of co-founder Stefano Gabbana as chairman.

Some of the main moves in markets:

Stocks

S&P 500 futures fell 0.6% as of 8:30 a.m. New York time
Nasdaq 100 futures fell 0.6%
Futures on the Dow Jones Industrial Average fell 1%
The Stoxx Europe 600 fell 0.8%
The MSCI World Index fell 0.3%

Currencies

The Bloomberg Dollar Spot Index rose 0.3%
The euro fell 0.3% to $1.1686
The British pound fell 0.3% to $1.3424
The Japanese yen fell 0.4% to 159.83 per dollar

Cryptocurrencies

Bitcoin fell 0.7% to $70 869.24
Ether fell 1.5% to $2,180.73

Bonds

The yield on 10-year Treasuries advanced three basis points to 4.34%
Germany’s 10-year yield advanced three basis points to 3.09%
Britain’s 10-year yield advanced five basis points to 4.89%

Commodities

West Texas Intermediate crude rose 7.8% to $104.15 a barrel
Spot gold fell 0.8% to $4,711.44 an ounce

This story was produced with the assistance of Bloomberg Automation.

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