Asian shares climbed after Wall Street rose on potentially encouraging news on interest rates, which have dragged markets lower since the summer.
US futures rose, while oil prices fell slightly after surging on Monday following Israel’s declaration of war on Hamas following its surprise attack from Gaza.
Tokyo’s Nikkei 225 was up 2.2% at 31,682.71 and Hong Kong’s Hang Seng was up 1.3% at 17,740.49.
In Australia, the S&P/ASX 200 was up 1.2% at 7,053.80. South Korea’s Kospi added 0.4% to 2,419.77. In Bangkok, the SET was up 0.5%.
On Monday, the S&P 500 rose 0.6% to 4,335.66, reversing losses to gains after two Federal Reserve officials suggested that interest rates could remain on hold at their next meeting as a jump in longer-term bond yields could help cool inflation without further market-rattling Fed hikes.
The Dow Jones Industrial Average was up 0.6% at 33,604.65 and the Nasdaq Composite was up 0.4% at 13,484.24.
Oil prices, which had risen on Monday on concerns about violence in the Middle East, fell back.
The area involved in the conflict is not home to major oil production, but fears that the fighting could affect the crude market sent a barrel of US oil up $3.59 to $86.38. Brent crude, the international standard, rose $3.57 to $88.15 a barrel.
Early on Tuesday, US benchmark crude was down 34 cents at $86.04 a barrel in electronic trading on the New York Mercantile Exchange.
Brent crude, the international standard, was down 30 cents at $87.85 a barrel.
One possible result of the violence is a slowdown in Iran’s oil exports, which have risen this year, said Barclays energy analyst Amarpreet Singh. Less supply of crude would push up its price, all else being equal.
The conflict could also damage the possibility of improving relations between Israel and Saudi Arabia, the world’s second largest oil producer.
Oil prices have already been volatile. A barrel of US crude had jumped from less than $70 over the summer to more than $90 last week, putting pressure on inflation and the wider economy. It fell sharply last week, before jumping again after the fighting in Israel began.
Monday’s rise in crude helped oil and gas stocks to some of the biggest gains on Wall Street. Marathon Oil rose 6.6% and Halliburton climbed 6.8%.
Shares of defence companies that make weapons were also particularly strong. Northrop Grumman rose 11.4% and L3Harris Technologies gained 10%.
At the other end of the spectrum were companies whose biggest expense is fuel. United Airlines was down 4.9% and Carnival was down 4.3%.
But it’s interest rates, and expectations of where they will go, that have driven Wall Street’s swings since the start of last year more than anything else.
Wall Street hates higher interest rates because they drive down the price of stocks and other investments. They also make it more expensive for all kinds of businesses and households to borrow money, which slows the economy.
The 10-year yield fell to 4.64% after rising to 4.80% from 3.50% in the summer and just 0.50% at the start of the pandemic. Trading in the US Treasury market was closed on Monday for a holiday.
This week’s reports on consumer and wholesale inflation are the next big data points due before the Fed’s next rate announcement on the 1st of November.
The coming week will also see the unofficial start of earnings season for the S&P 500, with Delta Air Lines, JPMorgan Chase and UnitedHealth Group among the big names on the calendar.
In Israel, the country’s central bank said on Monday it would sell up to $30 billion in foreign exchange to support the shekel, which has plunged in value since the violence began. It also said it would provide up to $15 billion to support market liquidity.
The shekel was down 2.3 per cent against the US dollar, back to where it was in 2016.
The dollar rose to 148.65 Japanese yen from 148.51 yen late Monday. The euro was flat at $1.0568.
Alongside the dollar, another asset that tends to do well in times of stress also rose. Gold was up $11.50 at $1,875.80 an ounce. On Monday it gained $19.10 to $1,864.30 an ounce.
