By COMFORT OGBONNA
Global stocks edged higher Wednesday as a sharp decline in oil prices helped push government bond yields lower, while investors looked for signs that a potential reopening of the Strait of Hormuz could ease pressure on energy markets and global inflation.
Markets were also awaiting fresh U.S. inflation data and quarterly results from Nvidia, the chipmaker at the center of the artificial intelligence investment boom. Both developments could influence expectations for interest rates and the direction of technology stocks in the weeks ahead.
The prospect of improved shipping conditions through the Strait of Hormuz provided a boost to investor sentiment.
Iran and Oman said they had discussed establishing a temporary navigational corridor through the strategically important waterway and agreed to work on clearing mines. The announcement revived hopes that shipping through the strait could gradually return to normal after months of disruption caused by the conflict.
The Strait of Hormuz is a critical route for global energy supplies, with roughly one-fifth of the world’s traded oil passing through the waterway before the conflict disrupted shipments.
Brent crude futures fell for a third consecutive session, dropping nearly 3% to $85.95 a barrel. The decline reflected expectations that a reopening of the waterway could allow more oil supplies to reach international markets.
The drop in crude prices also helped ease pressure on short-term government bond yields, which are particularly sensitive to expectations for central-bank interest rates.
The yield on Germany’s two-year government bond fell for a second consecutive session to 2.771%, its lowest level in more than a week. The two-year U.S. Treasury yield was little changed at 4.195% after declining about four basis points on Tuesday.
Investors remain cautious, however, about declaring an end to energy-related inflation pressures.
A sustained reduction in oil prices would require more than an announcement about a potential shipping corridor. Traders will be watching whether commercial vessels can actually resume regular passage through the Strait of Hormuz and whether energy supplies recover meaningfully.
The uncertainty has made oil prices one of the most important variables for investors trying to determine the future path of inflation and interest rates.
The MSCI global stock index rose about 0.1%, while Europe’s STOXX 600 remained near its highest level in more than a week.
U.S. stock futures were little changed as investors waited for the latest reading of the Personal Consumption Expenditures Price Index, one of the Federal Reserve’s preferred measures of inflation.
The data could provide fresh evidence about whether price pressures are continuing to moderate and help investors assess the likelihood of changes in monetary policy during the remainder of the year.
Expectations for a September interest-rate increase have fallen significantly in recent weeks. Market pricing indicated a roughly 36% probability of at least a quarter-point increase in September, down from around 67% earlier this month.
The shift followed economic data suggesting that inflation may be cooling, although concerns remain that volatile energy prices could complicate the Federal Reserve’s efforts to bring inflation under control.
Investors are also preparing for remarks from Federal Reserve Chair Kevin Warsh at the Jackson Hole economic symposium later this week.
His comments could provide important clues about how policymakers view inflation, economic growth and the appropriate level of interest rates.
Although markets have reduced expectations for a September rate increase, investors still see a possibility that borrowing costs could rise before the end of the year if inflation remains persistent.
The energy market and Federal Reserve outlook are also being watched alongside Nvidia’s earnings report.
Nvidia is scheduled to release its second-quarter results after U.S. markets close, with investors looking for evidence that the enormous spending on artificial intelligence infrastructure can continue generating strong growth and profits.
The company has become one of the most closely watched businesses in the technology industry because its processors are essential to many of the world’s largest AI systems.
Nvidia shares have gained about 14% this year, putting the stock on track for its smallest annual increase in four years. The slower pace of gains comes as investors increasingly look beyond the largest technology companies and search for AI-related opportunities across other industries and regions.
Nvidia shares were up about 0.3% in premarket trading, while Advanced Micro Devices and Broadcom also posted modest gains.
Options-market activity suggested investors were expecting a smaller share-price move following the earnings announcement than after some of the company’s previous quarterly reports.
That could indicate that expectations have become more balanced as Nvidia has established itself as a central player in the AI industry. Nevertheless, any significant change in the company’s revenue outlook, demand forecasts or profit margins could have consequences well beyond its own stock.
Investors have increasingly questioned whether the enormous sums being spent on AI infrastructure can generate sufficient returns to justify current valuations across the technology sector.
A strong Nvidia forecast could reassure investors that the AI investment cycle remains intact. A weaker outlook could raise broader concerns about whether companies are spending too aggressively on technology before the economic benefits become clear.
Meanwhile, bond and currency markets remain sensitive to recent changes in U.S. government debt policy.
The U.S. Treasury recently announced plans to expand its bond buyback program in an effort to improve market liquidity and reduce pressure on longer-dated government bond yields.
The move has also contributed to renewed attention on the dollar and the so-called debasement trade, in which investors purchase assets such as gold and bitcoin as a hedge against concerns about government spending, debt and the long-term value of currencies.
The dollar index stood around 99 and was on track to decline roughly 1% for August.
Longer-term U.S. Treasury yields were slightly higher ahead of the Federal Reserve gathering in Jackson Hole, reflecting continued uncertainty about the direction of monetary policy.
Gold remained near a three-month high as investors continued to seek protection against geopolitical and economic uncertainty.
Spot gold was last quoted at about $4,618.95 an ounce, just below the three-month high reached in the previous session.
Bitcoin also moved higher, trading around $78,631.59.
The combination of falling oil prices, possible progress on the Strait of Hormuz, moderating inflation expectations and the prospect of clearer guidance from the Federal Reserve has given investors several reasons for cautious optimism.
However, significant risks remain.
A renewed disruption to the Strait of Hormuz could quickly send oil prices higher again, while stronger-than-expected U.S. inflation could force markets to reassess expectations for interest-rate cuts or increases.
At the same time, Nvidia’s earnings could determine whether investors continue to embrace the AI-driven technology rally or begin questioning the sustainability of the enormous investment behind it.
For now, global markets are moving cautiously higher, with investors waiting for evidence that geopolitical tensions, energy prices and inflation are all moving in a direction that would allow central banks to ease financial conditions without reigniting price pressures.
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