By Harry Robertson and Gregor Stuart Hunter
LONDON/SINGAPORE, March 17 (Reuters) – European stocks ticked up but U.S. futures dipped on Tuesday as Iran’s renewed attacks on U.S. Gulf allies drove oil prices higher, keeping investors on edge after a tentative rebound in equities on Monday and in Asian markets overnight.
Meanwhile, the dollar and U.S. Treasury yields were little changed as allies rebuffed President Donald Trump’s demands to send warships to escort oil tankers through the key Strait of Hormuz, and as investors awaited decisions this week from the world’s major central banks.
The pan-European STOXX 600 index slipped in early trading but was last up 0.3%, while U.S. S&P 500 futures pointed to a 0.2% fall at the open.
Brent crude oil, the global benchmark, was last up 3.2% at $103.50 a barrel after Iran launched fresh attacks on the United Arab Emirates on Tuesday.
Operations at the UAE’s Shah gas field remained suspended on Tuesday, while a new attack caused a fire in the key oil export terminal of Fujairah, highlighting how Tehran is disrupting energy flows from the region.
Stock markets perked up on Monday as oil prices dipped, on hopes that shipping flows from the Gulf would improve and as optimism about artificial intelligence helped boost U.S. tech companies. The S&P 500 climbed 1%.
Asian shares followed suit overnight, with MSCI’s broadest index of Asia-Pacific shares outside Japan up 1.1%, and South Korea’s Kospi up 1.6%.
“U.S. markets pushed higher overnight, but futures are pointing to a softer start this afternoon, with volatility still very much in the driver’s seat,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
After Tuesday’s rebound, Brent crude is up more than 40% since the U.S. and Israeli strikes began, while the S&P 500 is down around 3%.
CENTRAL BANKS GRAPPLE WITH ENERGY PRICES
The Reserve Bank of Australia voted on Tuesday to hike interest rates for a second time this year as it grapples with a renewed bout of inflation, taking its benchmark rate to 4.1%.
It set the tone ahead of the U.S. Federal Reserve on Wednesday and European Central Bank, Bank of England and Bank of Japan meetings on Thursday, as they assess the global economic impact of the Iran war, even though all are expected to stand pat on policy.
Money market traders now broadly expect just one cut from the Fed after previously expecting two; that the BoE will likely remain on hold, after two reductions were formerly anticipated; and that the ECB will mostly hike rates once or twice after pricing in the chance of a cut in February.
The Bank for International Settlements on Monday urged policymakers not to rush reactions to the spike in global energy prices, calling it a textbook case of when to “look through” a supply shock.
The yield on the U.S. 10-year Treasury bond was up 1 basis point at 4.226%, and 26 basis points higher since the war began. Yields rise as prices fall, and vice versa.
The U.S. dollar index, which measures the currency against a basket of six peers, was last roughly flat at 99.75 after snapping a four-day streak of gains on Monday.
“We would be surprised if the FOMC (Federal Open Market Committee) indicated a strong direction on the impact of the war,” said Steve Englander, global head of G10 FX research at Standard Chartered in New York.
“It has no way of knowing how long the war will last or whether the biggest response will be on activity or inflation.”
The Japanese yen was little changed at 159.09 per dollar, just shy of the crucial 160 level despite verbal warnings from the Japanese authorities on Tuesday.
(Reporting by Harry Robertson in London and Gregor Stuart Hunter in Singapore; Editing by Shri Navaratnam, Thomas Derpinghaus and Pooja Desai)
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