A Rumble Down Under

03:30 |

Morning Bid U.S.

A Reuters Open Interest newsletter

What matters in U.S. and global markets today

By Mike Dolan, Editor-at-Large for Finance and Markets

After a slightly peculiar burst of positivity in world markets on Monday, without any one clear trigger, investors have turned sour yet again today, as the Iran conflict remains as tense as ever and oil prices move back up.

Away from the Middle East, the week's big central bank parade kicked off today with a widely anticipated interest rate hike in Australia.

I'll get into that and more below.

But first, check out my latest column on how central banks may yet avoid rate hikes as they navigate potential oil‑driven inflation.

And listen to today's episode of the Morning Bid podcast, where I break down Australia's hike versus global rate paths - plus a look at yesterday's burst of AI‑chip optimism.

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Today's Market Minute

U.S. average retail diesel prices crossed $5 a gallon for only the second time ever on Monday as the war in the Middle East squeezes supplies of the industrial fuel.
Nvidia said the revenue opportunity for its AI chips may reach at least $1 trillion through 2027, as the company outlined a strategy to compete more aggressively in the market.
Australia's central bank raised its cash rate for a second straight month on Tuesday, saying higher borrowing costs were needed to contain inflation.
Iran's threat to send oil prices to $200 a barrel may sound like bombast, but as the energy crisis drags on, that outcome looks more likely than Trump's prediction of a return to pre-war levels, argues ROI Energy Columnist Ron Bousso.
Ahead of a historic week that will see all the G4 central banks meet, ROI's Jamie McGeever explored how the Iran war has reshaped expected policy paths - potentially placing rate hikes back on the table.

A Rumble Down Under

The S&P 500 ended up 1% on Monday, though futures have since given back some of that. Asian shares were mixed again on Tuesday, with South Korea's KOSPI rising by 2.3% and Japan's Nikkei closing flat. The dollar has firmed after easing slightly yesterday.

Part of Monday's rally on Wall Street was due to a sizeable retreat in crude, as a kernel of optimism emerged about getting some ships heading to India, China and Pakistan through the Strait of Hormuz. Brent crude fell nearly 3% to settle at around $100 per barrel.

But that was short-lived. With few signs of any major breakthrough in the war and President Donald Trump struggling to draw NATO allies into a planned coalition to shepherd tankers through the strait, oil pushed higher once again on the simmering conflict, with Brent jumping to over $104 per barrel before easing slightly.

U.S.-China trade talks in Paris may also have helped improve sentiment at the margins, with the two sides holding constructive talks focused on agricultural goods and rare earths.

Another apparent cause of the lift on Monday came from the return of the AI theme to the forefront, as chipmaking giant Nvidia's annual GTC developer conference got underway in San Jose.

The world's most valuable company said that its AI chip revenue could potentially total $1 trillion through 2027, as it announced plans to compete more aggressively in inference computing. So far, Nvidia chips have dominated AI model training.

Meantime, South Korea's SK Hynix warned that strong AI demand could cause the global chip wafer shortage to last until 2030.

Turning to central banks, the Reserve Bank of Australia's unexpectedly narrow 5-4 vote to hike rates left the prospect of further tightening an open question. In response, the Australian dollar was a bit choppy on Tuesday.

Focus will now shift to policy decisions from other big central banks this week, including from the Federal Reserve tomorrow. Trump on Monday called on the Fed to hold an emergency meeting to cut rates, but the Fed's biggest task will be showing how it can negotiate the likely inflationary spur from a prolonged oil shock.

With that, onto today's column.

How the Fed and other central banks can bark without biting

The world's big central banks will want to pack at least a credible threat of higher interest rates this week to head off any inflation fallout from an oil price shock. If it's done well, they may not even need to pull the trigger.

This is a peculiar moment for central banks. The Federal Reserve, European Central Bank, Bank of Japan and Bank of England meet in the same week for the first time in more than four years, and there's no consensus on how to react to this month's Iran war-related oil shock.

Graphics are produced by Reuters.

Read the full column

Today's key chart

Graphics are produced by Reuters.

Australia's central bank raised rates for a second straight month in a tight call on Tuesday, warning of a "material" risk to inflation as policymakers stepped into a volatile global backdrop amid an intensifying Middle East war. The world's other major central banks meet later in the week, though they are expected to hold fire for now.

Today's events to watch

U.S. Federal Reserve's Federal Open Markets Committee begins two-day policy meeting
U.S. 12-month and 20-year bond auctions

Want more smart, engaging financial analysis in your inbox? Subscribe to Trading Day by Jamie McGeever, a daily newsletter delivered just after the market close. And check out Reuters Open Interest (ROI), an essential new source for data-driven, expert commentary on market and economic trends. You can find ROI on the Reuters website, and you can follow us on LinkedIn and X.

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