Crude oil above 90 dollars and Asian markets down after strikes in the Strait of Hormuz

This morning this newspaper opened on U.S. military action against Iranian rocket launchers in the area of the Strait of Hormuz. The development of the last few hours is not military but financial: the cost of the escalation was seen in energy prices and in Monday’s Asian trading.

The global benchmark crude gained 2% at the opening of Asian markets on August 31, according to data reported by Bloomberg. Brent crossed 90 dollars a barrel, as indicated both by TheStreet’s account and by India TV News’s market report, which draws on the PTI news agency.

On the equity side the movement went in the opposite direction and with uneven intensity from market to market.

Index	Value	Change
Nikkei 225	65,670 points	−735.56 (−1.11%)
Hang Seng	—	−0.66%
Sensex (opening)	77,130.73	−133.78 (−0.17%)
Nifty (opening)	24,117.55	—
Dow Jones (Friday’s close)	53,885.10	−0.9%
S&P 500 (Friday’s close)	7,711.76	−0.3%

Futures contracts on the S&P 500 index fell after Friday’s 0.3% decline, again according to Bloomberg. In Mumbai the drop was contained, less than two tenths of a point at the open.

The reading traders give of the movement is explicit. V K Vijayakumar, quoted by India TV News, attributes the rise of crude oil above 90 dollars to the renewed escalation of tensions between the United States and Iran. It is the usual transmission channel: the military action concerns a waterway through which oil traffic passes, and the risk is priced in even before an actual disruption materializes. According to the U.S. Central Command, the units struck were preparing to launch rockets and lay naval mines in the Strait; the Revolutionary Guards stated they had retaliated by striking U.S. bases in Jordan and the United Arab Emirates.

The second engine: rates

Oil is not the only variable in motion. On Friday markets had already reacted to the Jackson Hole speech by Federal Reserve Chairman Kevin Warsh, with sovereign yields rising and the dollar recovering: the daily report by CaixaBank Research shows that the implied odds of a U.S. rate hike in September rose from 35% to 60%. A market pricing in a 60% chance of tightening while crude oil trades above 90 dollars is working with two concurrent pressures on the expected cost of money.

The week’s calendar adds further material: on Tuesday, September 1, euro area inflation and unemployment figures are due, while European Central Bank members enter the quiet period ahead of the September 10 meeting. On the U.S. economic front, the Chicago manufacturing index fell to 47.1 in August from 57.6 in July, according to the analysis by Zacks carried by Yahoo Finance.

In Europe, the day’s data comes from Berlin: the federal statistical office Destatis estimates annual inflation for August at 2.9%, with the index up 0.2% on the month and core inflation at 2.4%. The energy component is the one rising the most: +10.5% year-on-year, against +8.3% in July. The news currently comes from a single source (Destatis, the federal statistical institute); no independent confirmation available. It should be read for what it is: a provisional estimate referring to August prices, whose final results are expected on September 10 and which does not incorporate Monday’s move in crude oil.

What we don’t know

The available excerpts do not include the specific level of Brent above 90 dollars, nor a day’s closing figures for European or U.S. markets on August 31: the Wall Street values reported here are Friday’s. No data is available on the volumes of crude oil actually passing through the Strait after Sunday’s action.