IBK Says Middle East Price Pressures Grow, Fed Could Raise Rates in September
Summary
- IBK Investment & Securities said geopolitical instability in the Middle East is driving further gains in global oil prices and commodity prices.
- The report said gains in Brent crude, WTI, and the global commodity price index are adding to inflation pressure and could weigh on the bond market and stock market.
- The report said the probability of a September Fed rate hike has risen to about 60% based on FedWatch, alongside higher U.S. 10-year Treasury yields.
Forecast Trend Report by Period
Geopolitical instability stemming from the Middle East is pushing up global oil and commodity prices, renewing the possibility of an additional interest-rate increase by the Federal Reserve, according to IBK Investment & Securities.
In a report dated Sept. 11, IBK Investment & Securities said the recent Iran crisis is raising the risk of broader clashes involving the U.S. and China, adding upward pressure to oil and commodity prices. That could further heighten market wariness over tighter monetary policy ahead of next week's Federal Open Market Committee meeting.
The report highlighted oil prices in particular. Brent crude has risen about 30% in the second half of the year and moved above $100 a barrel, while West Texas Intermediate has also stayed strong. On Sept. 10, October WTI settled at $102.48 a barrel on the New York Mercantile Exchange, up 6.69% from the previous session.
The report also cited the difficulty of a near-term easing in Middle East tensions as a risk factor. Because the conflict could continue through the U.S. midterm elections, upward pressure on oil prices is unlikely to ease quickly.
Inflation pressure is not limited to energy. Copper prices have climbed as investment in artificial intelligence data centers and power grids expands, while prices of key agricultural commodities such as coffee, cocoa and sugar have recently surged on extreme heat and crop concerns. A global commodity price index has also climbed above the peak reached during the Iran crisis last spring to the highest level this year.
The bond market is also reflecting concerns about tighter policy. The yield on the U.S. 10-year Treasury note rose to as high as 4.97% intraday in the previous session, nearing the October 2023 peak of 4.99%. The report said a move above 5% in the 10-year yield could also increase psychological pressure on equities.
The report added that the probability of a September rate hike has climbed to about 60%, according to the FedWatch tool. Given strong August employment data and the recent surge in oil prices, it said an unexpected increase cannot be ruled out. Even if the Fed holds rates steady at this meeting, concerns over tighter policy could persist if it leaves open the possibility of another hike in the fourth quarter.
