Oil surges, stocks and bonds drop

Brent crude futures were up 7.3% at $102 a barrel

Oil prices surged on ​Monday as the U.S. reportedly moved to impose a blockade in the Hormuz strait after the collapse of peace talks, while the dollar rose and stocks and bonds dropped.

The U.S. move leaves a fragile ceasefire hanging in the balance and no end in sight to the choke on Middle East energy exports – though ​the mood on trading floors leaned toward hoping for a resolution.

Brent crude futures were up 7.3% at $102 a barrel. ​S&P 500 futures were down 0.7% through the Asia morning and European futures dropped 1.3%.

U.S. Treasuries ⁠and bonds around Asia traded lower, with Japan’s benchmark 10-year yield hitting a 29-year high of 2.49%, though moves were relatively modest and ​took most assets to around where they were before last week’s ceasefire.

The market is now largely back to conditions before the ceasefire, except ​now the U.S. will block the remaining up to 2 million barrels Iranian-linked flows through the Strait of Hormuz as well, said MST Marquee analyst Saul Kavonic.

The key remaining question is if the U.S. renews strikes on Iran, raising the risk of strikes on energy infrastructure across the region which could have a further ​lasting impact beyond the duration of the war, Kavonic said.

The euro dropped nearly 0.3% to $1.1687 and risk-sensitive currencies such as the Australian dollar slid a little further.

Equity benchmarks from Hong Kong to Tokyo, Seoul and Sydney dropped around 1% and MSCI’s broadest index of Asian shares outside Japan dropped 1%.

The market is saying that it doesn’t believe ​Trump is going to strike more ​military assets or take over ⁠the Strait of Hormuz, said Russel Chesler, head of investments and capital markets at VanEck in Sydney.

However, he added, there were growing worries about inflation, which would intensify the longer the oil shock ​lasts.

Even if the Strait of Hormuz is to reopen the flow of oil is going to be pretty ​slow so we’re ⁠going to be stuck with high prices for some time, he said.

With inflation fears reviving, investors are now bracing for central banks tilting towards raising rates in a sharp reversal from pre-war bets on rate cuts or a ⁠prolonged pause.