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Oil gains after US, UK strike on Houthis; U.S. yields ease after PPI

by Jessica Weisman-Pitts
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2024 01 12T094507Z 2 LYNXMPEK0B01S RTROPTP 4 GLOBAL MARKETS

Oil gains after US, UK strike on Houthis; U.S. yields ease after PPI

By Caroline Valetkevitch

NEW YORK (Reuters) -Oil prices jumped more than 2% as some oil tankers diverted course from the Red Sea after overnight strikes by the U.S. and Britain on Houthi targets in Yemen, while U.S. Treasury yields eased on news that U.S. producer prices unexpectedly fell in December.

Wall Street stocks dipped in early trading as U.S. earnings season unofficially began. Major U.S. bank fourth-quarter profits fell, and an S&P 500 bank index was down 0.9%.

U.S. and British warplanes, ships and submarines launched dozens of air strikes across Yemen overnight in retaliation against Iran-backed Houthi forces for attacks on Red Sea shipping. The move widened a conflict stemming from Israel’s war in Gaza.

U.S. crude recently rose 2.72% to $73.98 per barrel and Brent was at $79.48, up 2.67% on the day.

The U.S. PPI data underscored views that the Federal Reserve may cut interest rates as soon as March. The producer price index for final demand dipped 0.1% last month as the cost of goods declined, while prices for services were unchanged, which bodes well for lower inflation in the months ahead.

Data on Thursday showed U.S. consumer prices rose more than expected in December.

“Markets are shrugging off yesterday’s CPI report since the underlying inflation trend is improving and the Fed can legitimately consider cutting rates this year,” Jeffrey Roach, chief economist for LPL Financial in Charlotte, North Carolina, wrote.

“The inflation pipeline is clearing and consumer prices will gradually get to the Fed’s 2% target.”

The Dow Jones Industrial Average fell 230.03 points, or 0.61%, to 37,480.99, the S&P 500 lost 9.95 points, or 0.21%, at 4,770.29 and the Nasdaq Composite dropped 32.81 points, or 0.22%, to 14,937.38.

The pan-European STOXX 600 index rose 0.74% and MSCI’s gauge of stocks across the globe gained 0.14%.

European Central Bank (ECB) President Christine Lagarde said rates could be cut if the central bank was sure that inflation had fallen to its 2% target.

The benchmark 10-year Treasury yield edged lower on the day to 3.969%, while the two-year yield dropped 6.4 basis points to 4.198%.

The U.S. dollar index gave up earlier gains and was last nearly flat in the wake of the U.S. PPI data. The New Zealand and Australian currencies were among the day’s best performers.

The kiwi was last up 0.55% at $0.62660. The Aussie gained 0.47% to $0.67165.

Bitcoin last stood at $45,305, down 1.84%. It surged to a two-year high of $49,051 on Thursday after the U.S. Securities and Exchange Commission late Wednesday approved exchange traded funds linked to bitcoin.

In Asia, Japan’s Nikkei extended its impressive gains so far this year, jumping 1.5% to another 34-year high.

Chinese inflation data showed the country’s economic recovery remained weak in December, with the consumer price index falling 0.3% from a year ago. However, separate trade data showed exports rose faster than expected last month while imports returned to growth.

(Additional reporting by Amanda Cooper in London, Stella Qiu in Sydney and Rae Wee in Singapore; Editing by Kim Coghill, Mark Potter, Hugh Lawson and Richard Chang)