The Japan Times - Stocks fall, oil surges as US inflation jumps and Israel strikes gas facilities

Brent oil rose five percent to over $108 a barrel after Iran vowed to hit energy facilities throughout the Gulf in retaliation to what it said was an Israeli attack on a facility on the Gulf coast serving a massive gas field it shares with Qatar.

The three main US stock indexes all opened lower, and European stock markets reversed earlier gains.

The US Labor Department reported before the start of trading that the Producer Price Index (PPI) rose 0.7 percent from the previous month, much faster than the 0.3 percent increase expected by analysts, and further clouding the outlook for interest rate cuts.

"The key takeaway from the report is that the uptick in producer prices was seen in both goods and services, and the added point is that this higher inflation occurred before the war with Iran and subsequent surge in energy prices, which will foment concerns about a worsening inflation situation," said Patrick J. O'Hare, an analyst at Briefing.com.

The PPI report came just ahead of a slew of meetings of the world's top central banks, with the US Federal Reserve gathering later Wednesday, to be followed on Thursday by the European Central Bank, the Bank of England and the Bank of Japan.

While they were all expected to keep rates steady, the latest inflation reports could lead to more hawkish comments from the central bankers.

"The (ECB's) Governing Council will not want to risk a repeat of 2022 when inflation risks were initially underestimated and perhaps contributed to the eventual surge to double digit inflation," said GianLuigi Mandruzzato, senior economist at EFG Asset Management.

Markets have been pricing in one rate cut this year in the United States, but could be forced to shift positions if Fed policymakers do so given the surge in energy prices.

The dollar, which had been little changed ahead of the Fed meeting, rose on news of the latest Israeli attacks.

Earlier Wednesday, oil prices had fallen slightly after Iraq said it had resumed limited oil exports through the Turkish port of Ceyhan, using a pipeline that avoids the effectively shut Strait of Hormuz, through which a fifth of global oil flows.

Iran has also vowed revenge after Israel announced it had killed security chief Ali Larijani, a key force leading Iran since the death of Supreme Leader Ayatollah Ali Khamenei in the first strikes of the war.

The latest flareup in violence appears to rule out any opening of the Strait of Hormuz -- which in peacetime carries about a fifth of global oil and LNG trade -- to shipping in the near term.

Earlier in the day, shares in Seoul jumped more than five percent, driven by chip giants Samsung and SK hynix. The Kospi, however, remains more than six percent down from the record highs touched before the war broke out.

Tokyo was up 2.9 percent, while Hong Kong and Shanghai also advanced.

- Key figures at around 1340 GMT -

Brent North Sea Crude: UP 4.4 percent at $107.92 per barrel

West Texas Intermediate: UP 1.9 percent at $97.32 per barrel

New York - Dow: DOWN 0.4 percent at 46,828.63 points

New York - S&P 500: DOWN 0.3 percent at 6,695.24

New York - Nasdaq Composite: DOWN 0.3 percent at 22,417.60

London - FTSE 100: DOWN 0.6 percent at 10,343.04

Paris - CAC 40: DOWN 0.1 percent at 7,967.31

Frankfurt - DAX: DOWN 0.4 percent at 23,644.64

Tokyo - Nikkei 225: UP 2.9 percent at 55,239.40 (close)

Hong Kong - Hang Seng Index: UP 0.6 percent at 26,025.42 (close)

Shanghai - Composite: UP 0.3 percent at 4,062.98 (close)

Euro/dollar: DOWN at $1.1504 from $1.1536 on Tuesday

Pound/dollar: DOWN at $1.3318 from $1.3352

Dollar/yen: UP at 159.51 yen from 159.05 yen

Euro/pound: DOWN at 86.35 pence from 86.38 pence

burs-rl/gv

M.Matsumoto--JT