NEW YORK: Oil prices rallied and US stocks tumbled Friday following news of a tanker attack in the Middle East as investors considered the size of an expected Federal Reserve interest rate cut later this month.
Wall Street stocks had been in positive territory through early afternoon, but fell decisively after Iran’s Revolutionary Guards announced they had confiscated a British tanker in the strategic Strait of Hormuz – a move that prompted swift criticism from the United States and Britain.
Oil prices also rallied on the latest escalation of tensions in Iran, lifting petroleum-linked equities in the US.
“Perhaps this will be the action that forces all parties to de-escalate the situation and come to the negotiating table,” said a note from BMO Capital Markets.
“As it stands, it appears two British flagged tankers have been seized and the weekend news wires will be watched closely ahead of Monday’s open.”
In New York, the broad-based S&P 500 lost 0.6%, while the Dow ended down 0.3%, lifted in part by Boeing.
The aerospace giant saw its share price surge 4.5% despite announcing some US$6.6 billion in new costs tied to the worldwide grounding of the 737 MAX planes.
Analysts said while costs were higher than expected, Boeing reassured investors in some respects, including its decision not to further cut production of the MAX.
Earlier, European markets finished mixed.
Big rate cut ahead?
US stocks rallied Thursday following remarks from New York Federal Reserve Bank President John Williams who said central banks should “act quickly” and not shy from a “dramatic series of rate cuts” to address economic weakness.
The comments were interpreted as endorsing an interest rate cut later this month, possibly a larger 50-basis point cut.
But the New York Fed clarified that the speech concerned decades of research and was not about what the central bank may decide at its next policy meeting July 30-31.
US President Donald Trump joined the fray, again flogging the Fed on Twitter for raising rates, and demanding an immediate interest rate cut.
Later Friday, a Wall Street Journal report saying the Fed is targeting a 25-basis point interest rate cut – rather than a larger move some were hoping for – helped push US stocks lower, analysts said.
The dollar also advanced against the euro and other currencies as the already-low prospects for the bigger Fed interest rate cut dimmed further.