Oil leaps to highest since May as Iran war squeezes crude, Wall Street slides

Oil prices jumped on Thursday to their highest levels since before the summer, as the war with Iran keeps clogging the global flow of crude. The surge worsened inflation worries, pushed bond yields up and dragged Wall Street lower for a fourth straight session.

The S&P 500 fell 0.6 per cent, its longest losing streak since June, though it remains not far from its all-time high set last month. The Dow Jones Industrial Average dropped 316 points, or 0.6 per cent, and the Nasdaq composite sank 0.7 per cent.

Brent tops US$108

Brent crude, the international standard, climbed another 6.3 per cent and briefly topped US$108 per barrel for the first time since May before settling at US$107.63. It has jumped from less than US$72 in early July as hopes fade that the war with Iran will allow oil to flow freely again from the Middle East anytime soon.

President Donald Trump said on Wednesday that oil prices likely will not come down until after the U.S. midterm elections in November.

The rally has vaulted the average price of a gallon of regular gasoline to nearly US$4.28 across the United States, according to AAA. That is up nearly 34 per cent from a year earlier and is costing consumers not just at the pump but through higher prices for goods that move by truck to store shelves.

Wholesale inflation accelerates

A report on Thursday said inflation at the U.S. wholesale level accelerated to 5.4 per cent last month from 4.8 per cent in July. Retailers could eventually pass such increases onto shoppers. A report due on Friday will show how much inflation U.S. consumers are feeling.

The typical response to high inflation is for the Federal Reserve to raise its main interest rate, the federal funds rate. That filters through the bond market, makes borrowing more expensive for U.S. households and businesses, slows the economy and undercuts prices for investments.

A report on Thursday suggested the U.S. job market may remain solid, with fewer workers applying for unemployment benefits last week. That could give the Fed more confidence the economy can withstand higher rates. Traders now see a roughly 73 per cent chance the Fed will raise the federal funds rate at its meeting next week, up from 61 per cent the day before, according to CME Group data. That is despite Trump's consistent lobbying for lower rates.

The European Central Bank raised its own interest rates on Thursday in hopes of getting inflation in check. It cited “the conflict in the Middle East” and how it “continues to generate inflation pressures.”

The yield on the 10-year Treasury rose to 4.95 per cent from 4.83 per cent late Wednesday, a significant move for the bond market. It is up from just 3.97 per cent before the war with Iran began and is back to where it was in the autumn of 2023, after the Fed cranked rates higher to control post-COVID inflation.

Bank of America's Research Investment Committee suggests 7 per cent may be the more important threshold for the 10-year yield, pointing to peaks for expensive stocks around that point in the past. Some investors see 5 per cent as the next potential flashpoint.

Housing and Macy's

The rising 10-year Treasury yield is making mortgages more expensive. One report on Thursday said the average long-term U.S. mortgage rate hit its highest level in over 14 months, while another said sales of previously occupied U.S. homes fell in August to their slowest pace in more than a year. Homebuilder stocks fell, including drops of 3.5 per cent for Lennar and 2.4 per cent for D.R. Horton.

Macy's fell 4.7 per cent even though the retailer reported stronger profit and revenue for the latest quarter than analysts expected. While raising its forecast for earnings this fiscal year, it warned that “there are macroeconomic and geopolitical factors that could influence” how much its customers feel comfortable spending.

Macy's said it received US$116 million in tariff refunds from the government, US$98 million during the quarter and another US$18 million after the quarter ended. CEO Tony Spring told The Associated Press that it is using some of the proceeds to lower prices on certain items like furniture and other big-ticket purchases.

All told, the S&P 500 fell 44.66 points to 7,591.70. The Dow dropped 316.56 to 52,064.10, and the Nasdaq composite sank 171.62 to 26,081.72. In markets abroad, indexes slipped across much of Europe and Asia, with Hong Kong's Hang Seng down 1.3 per cent for one of the world's biggest moves.

For Nigeria, a Brent price near US$108 supports dollar earnings from crude, the main source of federation revenue and forex inflows. But rising U.S. yields tend to strengthen the dollar, which keeps pressure on the naira and raises the cost of imported goods.