Oil prices rally, US data dents chances of Fed rate hike

NEW YORK — U.S. and European shares fell on Friday, and oil prices rose more than $1 a barrel as markets monitored tense U.S.-Iran talks ​and digested new data that dented expectations for a Federal Reserve rate hike next month.

Faltering talks to end the Iran war left oil and gas prices poised for sizeable weekly gains. The U.S. threatened to ramp up economic pressure on Iran, including extending a ‌naval blockade.

A survey showed U.S. consumer sentiment deteriorated in early August amid the rising cost of living because of the Middle East conflict.

The U.S. dollar fell on a surprise drop ⁠in U.S. retail sales, supporting gold prices. The data further reduced expectations ​of a Federal Reserve rate hike at next month's meeting.

U.S. Treasuries fell ⁠on Friday after an initial rally driven by the retail sales data lost momentum.

The S&P 500 fell from record highs, under pressure as shares ‌in chip equipment maker Applied Materials declined, ‌to end the session down 0.17% at 7,785.76 points. Chipmakers including Broadcom and Intel also dropped.

The Nasdaq declined 0.28% to 26,729.16 points, ⁠while the Dow Jones Industrial Average declined 0.20% to 53,732.41 points.

"A lot of the drivers ⁠in the market right now are around various parts of AI," said Thomas Martin, senior portfolio manager at GLOBALT Investments in Atlanta.

European shares finished lower on Friday and snapped a four-week winning streak, as rising crude prices and renewed geopolitical tensions offset support from a resilient earnings season.

MSCI's gauge of stocks across the globe fell 0.79 points, or 0.07%, to 1,160.01.

MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.29% higher at 1,640.08.

Geopolitical risk

"The markets round out the week on a positive note, with relatively thin event risk on the economic and corporate ‌calendar. But of course, it's a Friday, and the typical pattern has been for geopolitical risks, or ​at least bombastic rhetoric, to pick up between the U.S. and Iran going into the weekend," Capital.com strategist Kyle Rodda said.

"Currently, the geopolitical uncertainty remains the only major macro roadblock to a market experiencing strong tailwinds from earnings and the monetary policy outlook," Rodda said.

Brent crude oil futures settled at $88.52 a barrel, up 1.67%. U.S. futures finished at $82.40, up 1.42%.

John Sidawi, senior portfolio manager for fixed income at Federated Hermes, said a puzzling feature of markets in recent months has been the growing disconnect between geopolitical uncertainty and asset price volatility.

"For now, markets appear willing to tolerate a significant amount of uncertainty without demanding higher risk premiums. However, this equilibrium is unlikely to be permanent," Sidawi said.

"A meaningful ​escalation in conflict or a clear path toward resolution could finally force investors off the sidelines, potentially triggering a much larger volatility response than current market pricing implies."

Yen stuck in intervention loop

In currencies, ‌the yen strengthened 0.1% against ⁠the greenback to 159.33, after a Reuters report that the Bank of Japan could raise rates as soon as September, according to three sources familiar with policymakers' thinking.

However, the 160 level is still within sight, which traders think could trigger another bout of yen buying from Tokyo, after a joint intervention with the U.S. last month failed to support the Japanese currency.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.28% to 99.65, with the euro up 0.35% at $1.1567.

Spot gold rose 0.53% to $4,374.27 an ounce, while U.S. gold futures ‌settled 0.4% higher at $4,437.30.

In bonds, the yield ⁠on benchmark U.S. 10-year notes ​rose 4.72 basis points to 4.688%. [US/]

Contributing; Noel Randewich and Ankur Banerjee

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