Oil prices rise in world markets

Oil prices rose on Monday morning as tensions escalated again in the Middle East and investors weighed the possibility of a U.S. interest rate hike.

Asian shares fell on Monday as dovish comments from Federal Reserve Chairman Kevin Warsh prompted investors to raise expectations for a U.S. interest rate hike. Meanwhile, oil prices rose sharply after a new escalation in the war between the U.S. and Iran.

With inflation remaining high – largely due to high energy costs – the US central bank has come under pressure to intervene. While Warsh’s refusal to provide clear guidance has added to the uncertainty.

But in a speech at a symposium of central bankers and economists in Jackson Hole, Wyoming, he left little doubt that he was willing to raise borrowing costs.

Warsh said: “We need to be sure that core inflation is moving towards our target, clearly and at a sufficient pace. Otherwise, we still have work to do.”

He called rising inflation — currently at 3.7% and almost double the Federal Reserve's 2% target — "disturbing" and said he would find it "very difficult" to describe the current financial situation as "tight," a possible signal that interest rate hikes could be on the horizon.

However, he stopped short of saying he would support a rate increase, adding: “Today I stand here committed to discipline, not to a decision.”

The three major indexes on the New York Stock Exchange fell on Friday. Yields on short-term U.S. Treasury bonds — which reflect expectations about monetary policy — rose, while the dollar strengthened against other currencies. Gold, which benefits from lower interest rates, fell.

Asian markets also followed the same trend, with technology companies - which rely on borrowing to finance their large investments in artificial intelligence - leading the declines.

Tokyo, Seoul, Hong Kong, Shanghai, Taipei and Jakarta all fell, while Singapore and Wellington rose slightly.

Investors await the release of important data

Attention will now turn to a series of important data releases over the next two weeks, before the Federal Reserve makes its decision. This week, employment data is expected, while next week, the consumer price index (CPI) will be released.

“If we get a payrolls result in line with expectations, which doesn’t give the Fed much room to maneuver, next week’s core consumer inflation report will become the key determinant of how the market perceives Fed policy,” wrote Chris Weston of Pepperstone.

“Price volatility around this outcome in interest rate, currency and equity markets could, therefore, be considerable.”

Oil prices rise due to US-Iran tensions

The Federal Reserve's fight against inflation has been complicated by the war with Iran, which has pushed oil prices higher.

And after a period of decline for much of last week, prices rose sharply again on Monday, a day after the United States said it had struck Iranian missile launchers on a small island in the Strait of Hormuz, its first strikes on Iran in a month.

The attack prompted Tehran to retaliate by striking US military targets in Jordan. Both main crude oil futures rose more than 2% on Monday. The clash came shortly after the US-Iran war reached six months and at a time when hostilities had begun to ease.

The news reignited concerns about the conflict, as peace efforts and talks appear to be going nowhere and the strait - through which a fifth of the world's crude oil and gas passes - remains largely closed.

US officials vowed this month to "economically strangle" Iran in an attempt to force it to open the waterway.

“Hormuz is again threatening to put a floor on the price of oil, just as Warsh is putting a ceiling on the amount of inflation patience markets should expect from the Federal Reserve,” said Stephen Innes of Quintex Intel.

"For oil traders, this move is another reminder of how quickly the geopolitical premium can return."

“Physical oil flows through Hormuz have improved significantly from their worst levels, which is why crude oil had begun to give back some of the fear premium. But the latest crash shows how fragile this progress remains and how quickly the issue of shipping could return to the forefront of traders’ minds.”