April 2 (UPI) — The price of oil surged while stocks retreated on Thursday after U.S. President Donald Trump’s address to the nation on the Iran war stoked fears it could be about to get a lot worse, spooking markets.
Trump’s threat to “hit them extremely hard” sent global benchmark Brent crude futures soaring to $109.48 per barrel, a rise of more than $8, while the U.S. benchmark West Texas Intermediate jumped $9.61 a barrel to $109.73.
Oil had fallen below $100 for a while on Wednesday after Trump said U.S. forces would be out of Iran soon.
Stock markets reversed gains over recent days with South Korea’s Kospi index shedding 4.5% and the Nikkei 2.4% on Thursday, with European markets also pulling back across the board, led by Germany DAX index, which was down 2.2% in mid afternoon trade.
The pessimism was reinforced by movement of energy stocks in the opposite direction, with BP and Shell shares climbing 4.5% and 3.1% on the London Stock Exchange.
Out-of-hours trading in the U.S. markets indicated bourses would likely fall when they opened on Thursday morning.
Deutsche Bank directly attributed the deterioration in market sentiment to Trump, saying his address failed to shed any light “on potential timelines or conditions for ending hostilities against Iran.”
“There was no signal of the United States seeking an imminent offramp out of the war,” the bank said in a note.
Tehran responded to Trump’s comments, in which he also threatened to bomb Iran “back to the stone ages,” by issuing a statement vowing “even more crushing, more extensive and destructive actions” against the United States and Israel.
The trading of threats also sent global investors scrambling for the security afforded by the U.S. dollar, with the greenback jumping more than 0.6% against a raft of other major currencies.
U.K. government bond yields on 10-year gilts edged close to 4.9%, meaning the government will have to pay more to borrow because the market believes the higher energy costs will feed into higher inflation.
IG chief market analyst Chris Beauchamp said investors were pricing in ruinous economic impacts from long-term supply disruption from oil producing nations in the Gulf.
“In what might be the most dramatic April fools of recent years, Donald Trump did nothing of what was expected in his speech. Instead of ‘no more war’, we got ‘no, more war!’, with heavier strikes expected and a fresh warning of attacks on power plants. This leaves markets back where they were last week, and now we have to price in hundreds of millions of barrels of oil that aren’t coming out any time soon… markets are back to pricing in economic catastrophe,” said Beauchamp.