Oil price surge reignites inflation worries as ECB holds rates

In currency markets, the euro dipped back below $1.14 following the ECB decision having looked to be heading for a one-week high earlier in the session. Traders were now readying for ECB chief Christine Lagarde's 1245 GMT press conference and any hints she may give there. As well as the oil price rise, scorching summer weather in much of Europe this month looks set to hit harvests and push up food prices, while low water levels on key rivers could create awkward shipping bottlenecks. Elsewhere, the Japanese yen was back at a 40-year low versus the dollar as a brief lift, prompted by a Bloomberg report on Wednesday that Bank of Japan officials were open to raising rates at a faster pace, faded. Japan's BOJ-sensitive 2-year government bond yield had hit a 31-year high in Tokyo on the oil moves and rate hike talk, while Japan's finance minister had issued his latest verbal warning about possible FX market intervention. "The consensus view blames a timid BOJ (for the recent yen fall), but I think the problem is that higher oil prices have dashed hopes of 1.5% GDP growth this year," said Societe Generale FX strategist Kit Juckes. In contrast to Europe's struggles, Asian markets had gained overnight. The KOSPI surged more than 4% in Seoul, led by 4.8% and 3.7% respective gains for SK Hynix and Samsung. Tokyo's Nikkei and Hong Kong's Hang Seng also ticked higher. But Wall Street futures pointed to a further dip there later after results from Alphabet and Tesla — the first two of the so-called "Magnificent Seven" megacap companies to report this season — had failed to impress. "U.S. megacaps may face more scrutiny because they are writing the cheques, while chipmakers, memory suppliers and infrastructure companies get paid earlier in the investment cycle," Charu Chanana, chief investment strategist at Saxo in Singapore, said. The main focus remained on the renewed surge in oil prices — and global borrowing costs — following the re-escalation of the Iran war. The Iran-aligned Houthis said on Thursday they had struck two Saudi oil tankers as part of a naval blockade on Saudi Arabia, threatening to create a second chokepoint on global oil supplies alongside Iran's near-closure of the Strait of Hormuz. The U.S. military carried out a new round of strikes on Iran, marking a 12th successive night of American attacks and prompting further Iranian retaliation. Brent prices jumped almost 5% to more than $98 a barrel, putting the psychological $100 threshold well within reach again. Germany's 10-year bund yield, the benchmark for euro zone borrowing costs, also rose above 3.2% for the first time since 2011 — a time when oil was also on a tear and the bloc's debt crisis was about to break out again too. "Uncertainty remains high and the full inflationary impact of the energy shock has yet to play out," the ECB said as it held rates at 2.25%, having lifted them in June. "The Governing Council is therefore closely monitoring the intensity and duration of the shock, as well as its indirect and second-round effects," the ECB added. Markets had seen just a one-in-five chance of another interest rate hike at this meeting. They do, however, see a four-in-five chance of a hike at the next one in September. "The messaging remained unchanged and open," Morgan Stanley's analysts said on the ECB's policy statement. "We maintain our call for another rate hike in September, if energy prices remain elevated." A spike in oil prices toward $100 a barrel drove Europe’s government borrowing costs to long-term highs on Thursday as reignited inflation worries prompted some hawkish signals from the European Central Bank as it held rates steady. Share markets were also on the back foot as an earnings miss from chipmaker STMicroelectronics sent its shares tumbling 15% and after Google-parent Alphabet plans announced it would ramp up AI spending by another $15 billion to $200 billion for the year.

Oil price surge reignites inflation worries as ECB holds rates

Yen languishes at 40-year lows

Asian gains and weaker U.S. futures

Middle East tensions push Brent higher

Oil surge and ECB stance pressure markets

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