Global oil prices surged to their highest in more than a month as the US-Iranian exchange of attacks escalated over the weekend. Brent surged as much as 3.8 percent to above $91 a barrel, its highest since June, as a series of attacks now target more than just military infrastructure.
Dollar Strong, Treasury Bonds Slip
The US dollar strengthened against most major currencies. 10-year Treasury futures slipped seven basis points, while cash market trading was closed on Monday throughout the Asian session due to a public holiday in Japan.
The escalation of the conflict in the Middle East added to the already nervous market, as a wave of selling in technology stocks intensified on concerns about the sustainability of massive spending on artificial intelligence (AI). While demand for AI technology and corporate earnings remain strong, lingering questions about the sustainability of that growth have pushed chip stocks into a bearish phase.
Gold Continues to Fall, Silver and Platinum Also Hit
Gold prices extended last week's decline, falling 0.5 percent to levels below $4,000 an ounce. Silver and platinum also fell as rising oil prices reinforced expectations that interest rates will remain high for an extended period.
Attacks Continue in the Gulf
According to Iranian media reports, US military forces attacked Qeshm Island in the Persian Gulf and several cities in southern Iran, including Shadegan, Sirik and Hajiabad, without any immediate details on casualties or damage. Iran retaliated by targeting a power and desalination plant in Kuwait, the third such attack in as many days.
Impact on the Market and the Ringgit
While safe-haven demand supported the dollar in early trading, Treasury bonds are expected to come under additional pressure when cash trading begins in London, as the 20 percent jump in oil prices this month revives inflation concerns.
Federal Reserve Chairman Kevin Warsh stressed that the central bank's priority remains to suppress inflation, and traders are now focusing on economic data this week to reinforce expectations of a rate hike in September or October.
For the ringgit, the combination of continued dollar strength and inflationary risks from high oil prices could add double-dip pressure on the local currency, especially if US economic data this week continues to reinforce the narrative of the country's economic performance that has outperformed market expectations.
Key Takeaways
Brent oil prices surged to their highest since June, surpassing USD91 a barrel, following the escalation of attacks between the United States and Iran.
Gold prices fell 0.5 percent to below USD4,000 an ounce, extending last week's decline on expectations of continued high interest rates.
Tech and chip stocks are selling off amid concerns over the sustainability of AI spending.
Iran has attacked a power and desalination plant in Kuwait, the third attack in as many days, following US retaliatory strikes on southern Iran.
Rising oil prices and expectations of higher interest rates could add pressure on the Ringgit in the near term.
As long as the conflict in the Middle East remains escalating and inflation concerns remain, markets are expected to remain volatile until there is more clarity from economic data and the Fed's official stance this week.
