There was selling pressure on Wall Street and global markets as the war with Iran escalated.
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Wall Street on Tuesday saw stocks sell off around the world, with oil prices jumping even higher, as concerns grow that the war with Iran is widening and the global economy could suffer more sustained damage than feared.
The S&P 500 fell 1.8 percent in early trading. As of 9:35 a.m. ET the Dow Jones Industrial Average was down 907 points, or 1.9 percent, and the Nasdaq Composite was 2.1 percent lower. The S&P/TSX composite was down more than 1,000 points in early trading.
Just a day ago, US stocks had opened with huge losses, but all of them were recovered and the day ended with a slight gain. But that was with the caveat that oil prices should not rise too high, such as above US$100 per barrel.
On Tuesday, oil prices neared that mark and raised more concerns. The price of a barrel of international standard Brent crude rose 8.2 percent to $84.14. Less than a week ago it was near $70. Meanwhile, a barrel of benchmark US crude oil rose eight per cent to $76.92.
Oil prices surged as Iran attacked the US embassy in Saudi Arabia, part of a spate of targets that also include areas vital to the world’s oil and natural gas production. Concerns are particularly high over what will happen to the Strait of Hormuz off Iran’s coast, a narrow passage through which about a fifth of the world’s oil passes.
Things have become uncertain for the markets raising questions as to how long this war can continue.
Strikes by the United States and Israel have already killed Iranian Supreme Leader Ayatollah Ali Khamenei, but President Donald Trump has suggested the fighting could continue for weeks.
Late Monday, Trump said on his social media networks, “With the supply of weapons that the United States has, the war can be fought ‘forever,’ and very successfully.”
A surge in oil prices would worsen inflation and put more pressure on American households and businesses by increasing the bills to ship gasoline and products. The average price of a gallon of gasoline in the US rose 11 cents overnight to about US$3.11, according to data from motor club AAA.
The losses in stock markets so far have been concentrated in companies and countries that use a lot of oil, natural gas and other petroleum-based fuels.
Asian markets fell, airline stocks sank
In South Korea, a big energy importer, the Kospi stock index fell 7.2 percent in its worst day since two summers. It was setting records recently.
Japan’s Nikkei 225 fell 3.1 percent, while analysts say Japan has a huge stockpile of energy to last more than 200 days.
On Wall Street, airlines continued to sink on concerns about rising fuel bills. Due to the war, flights have been canceled and passengers are stranded. United Airlines declined 4.1 percent, American Airlines declined four percent and Delta Airlines declined three percent.
In the bond market, Treasury yields edged higher as concerns about worsening inflation grew. The yield on the 10-year Treasury rose to 4.10 percent from 4.05 percent late Monday and just 3.97 percent on Friday.
Higher yields could mean more expensive borrowing for American households and businesses for everything from mortgages to bond issuance.
