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While you were sleeping: Oil rallies, Wall St eases on Middle East tension

Thursday 12th April 2018

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Oil prices jumped while Wall Street slipped as investors eyed rising tension between the US and Russia about the Middle East.

“Russia vows to shoot down any and all missiles fired at Syria,” US President Donald Trump tweeted. “Get ready Russia, because they will be coming, nice and new and 'smart!'” 

In 1.52pm trading in New York, the Dow Jones Industrial Average slid 0.5 percent. However, the Nasdaq Composite Index eked out a 0.06 percent gain. In 1.38pm trading, the Standard & Poor’s 500 Index fell 0.3 percent.

“It’s shock and awe—tweets will continue, headlines will continue,” Yana Barton, equity portfolio manager at Eaton Vance, told Bloomberg. “Guess what? Volatility is the new norm.”

US Treasuries rose, pushing yields on the 10-year note one basis point lower to 2.79 percent. 

Crude prices climbed to touch the highest levels since late 2014.

"All eyes are on geopolitical tension at the moment, not just because the market is that much more finely balanced, but because there are several pockets of geopolitical tensions," said Matt Smith, director of commodity research at tanker-tracking firm ClipperData, according to CNBC.

The Dow fell, as slides in shares of DowDuPont and those of Boeing, recently down 1.6 percent and 1.4 percent respectively, outweighed gains in shares of Exxon Mobil and those of McDonald’s, recently up 0.6 percent and 0.5 percent respectively.

Meanwhile, a US Labour Department report showed the core consumer price index, which excludes food and energy, increased 2.1 percent in March from the year-earlier month, the biggest gain in a year and accelerating from a 1.8 percent pace in February. 

The report firmed expectations the Federal Reserve will hike rates again at its June meeting.

While "partly driven by base effects ... the recent strengthening of monthly price pressures suggests that core inflation will continue to trend higher this year," Andrew Hunter, US economist at Capital Economics, said in a note. 

“Overall, the rebound in core CPI inflation keeps the Fed firmly on track for another 25 basis-point rate hike in June,” according to Hunter. “But the big issue for Fed officials is that their preferred core PCE inflation measure is now rising at an even faster rate.”

Indeed, minutes from the Fed’s March meeting, released on Wednesday, showed policy makers considered a “slightly steeper” path of rate hikes.

“A number of participants indicated that the stronger outlook for economic activity, along with their increased confidence that inflation would return to 2 percent over the medium term, implied that the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected,” according to the minutes of the Federal Open Market Committee’s March 20-21 meeting.

In Europe, the Stoxx 600 Index ended the session with a 0.6 percent decline from the previous close. The UK’s FTSE 100 Index slipped 0.1 percent, France’s CAC40 Index dropped 0.6 percent, while Germany’s DAX Index slid 0.8 percent. 

Shares of Switzerland’s Barry Callebaut slumped after the world’s leading manufacturer of chocolate and cocoa products signalled its sales volume growth pace will ease in the second half of the year.

The stock closed 8.4 percent weaker at 1,750 Swiss francs in Zurich, after rising as high as 1,966 Swiss francs earlier in the session after the company reported sales volume grew 8 percent in the six months ended February 28 from the same period a year earlier. That exceeded its mid-term sales volume target of increases between 4 percent and  6 percent. 

“We won’t continue at this pace, if nothing else then because we have a much higher base in the second half,” Chief Executive Antoine de Saint-Affrique told reporters and analysts at a conference at the company’s headquarters in Zurich, according to Reuters.

“I’m quite confident we can live up to our guidance, but I’m not sure we can do 8 percent all the time,” he said, adding he still saw a lot of growth potential for Barry Callebaut.

Meanwhile, France’s Carrefour, Europe's largest retailer, said sales growth slowed in the first quarter amid “a persistently competitive environment” in its home market.

Less favourable markets overall in Europe, notably due to adverse weather conditions impacting more specifically non-food and hypermarkets, continued sharp food deflation in Brazil, and persistently strong competitive pressure in the group’s main markets weighed on first quarter sales, the company said in a statement. 

In France, its key market, like-for-like revenue declined 0.1 percent in the first quarter.

The stock eked out a 0.2 percent gain from the previous day’s close in Paris.



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