US stocks slip and oil rallies as weak retail data dims Fed rate hike hopes
A drop in US retail sales reduced expectations for a Federal Reserve rate increase, while escalating tensions between Washington and Tehran pushed crude prices higher and weighed on equities.
US equities retreated from record highs and crude oil prices climbed more than a dollar on Friday as weak consumer data derailed expectations for a Federal Reserve interest rate hike. The S&P 500 slipped 0.17% to 7,785.76 points, while Brent crude futures settled up 1.67% at $88.52 a barrel.
A surprise drop in US retail sales and deteriorating consumer sentiment in early August signaled that the rising cost of living tied to the Middle East conflict is weighing on households. The softer economic figures prompted traders to scale back bets on a Fed rate increase at next month's policy meeting, causing the dollar index to fall 0.28% to 99.65.
Meanwhile, faltering negotiations to end the war in Iran kept energy markets on edge. Washington threatened to intensify economic pressure on Tehran, including a potential extension of its naval blockade, which supported a sizeable weekly gain for oil and gas prices. US crude futures also advanced, closing 1.42% higher at $82.40 a barrel.
The combination of geopolitical risk and macroeconomic uncertainty pressured stock indices globally. The Nasdaq composite declined 0.28% to 26,729.16 points, dragged down by a drop in chip equipment maker Applied Materials that also weighed on peers like Broadcom and Intel. Thomas Martin, senior portfolio manager at GLOBALT Investments, noted that artificial intelligence remains a primary driver of market momentum.
European shares snapped a four-week winning streak as rising crude prices offset support from a resilient corporate earnings season. MSCI’s global stock gauge edged down 0.07% to 1,160.01, though Asian markets outside Japan managed a slight 0.29% gain to close at 1,640.08.
Despite the geopolitical friction, asset price volatility has remained relatively subdued. John Sidawi, senior portfolio manager for fixed income at Federated Hermes, noted that investors are currently tolerating uncertainty "without demanding higher risk premiums." He warned this "equilibrium is unlikely to be permanent" and that a meaningful escalation could trigger a much larger volatility response than current pricing implies.
The flight to safety supported gold prices, with spot bullion rising 0.53% to $4,374.27 an ounce and US futures settling at $4,437.30. In fixed income markets, US Treasuries gave back early gains, pushing the benchmark 10-year yield up 4.72 basis points to 4.688%.
The Japanese yen strengthened 0.1% against the dollar to 159.33 following reports that the Bank of Japan could raise interest rates as early as September. This keeps the currency near the 160 threshold that previously triggered joint intervention with the US after Tokyo's efforts failed to support the yen.
