Oil edges higher as Middle East tensions linger

OIL opened slightly higher as traders weighed renewed Israeli attacks on Lebanon and the prospect of fresh US sanctions on Iran ahead of the formal end of the ceasefire due on Monday (Aug 17) . 

Global benchmark Brent crude rose 0.5 per cent in early Asia trading while the US dollar was little changed against major peers. S&P 500 contracts were steady after the underlying gauge slipped 0.2 per cent on Friday. 

The tepid start comes after Israel said on Sunday it killed 11 people, including a senior Hizbollah commander, in strikes on southern Lebanon a day earlier – the deadliest since the sides agreed to a ceasefire in early June.

Israeli Prime Minister Benjamin Netanyahu said the strikes were retaliation for a Hizbollah attack that injured three soldiers on Saturday. 

The fighting may further complicate already deadlocked negotiations between Washington and Teheran.

The sides are set to reach the formal end of their ceasefire agreement on Monday with no apparent path forward on the Strait of Hormuz and the US preparing an “economic isolation” plan. 

“The most significant headwind for the market currently remains geopolitical uncertainty, which continues to weigh on market sentiment here and there – although the relative lack of military activity in the Middle East has lowered volatility at the margins,” said Kyle Rodda, a senior analyst at Capital.com. 

US equities slipped from a record on Friday as consumer sentiment slid more than expected and retail sales dropped the most in more than a year.

The US dollar fell to its lowest since May as traders further trimmed bets the US Federal Reserve will hike interest rates in September. 

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A slew of China data, including retail sales and industrial production, will be in focus on Monday. Economists expect consumer spending to have picked up slightly in July, while factory output may have slowed, according to Bloomberg surveys. 

China’s “macro momentum continues to deteriorate” as credit growth has slowed and inflation remains weak, Wee Khoon Chong, a strategist at BNY wrote in a note to clients.

“July activity data are likely to reinforce the slowdown, with retail sales and high-tech investment the key areas to watch for resilience.” 

Traders in Asia will also focus on Japan’s second-quarter growth reading on Monday for clues on whether the Bank of Japan (BOJ) may hike its policy rate again in September to support the yen.

Economists expect growth to have accelerated in the June quarter as private consumption picks up and business spending rebounds, according to a Bloomberg survey.

The reading may also help ease market fears over Japan fiscal profligacy which appear to have stabilised, said Elias Haddad, global head of markets strategy at Brown Brothers Harriman. 

“Stronger Japan economic activity can further calm fiscal concerns by keeping the debt-to-gross domestic product ratio on a downward trajectory, while strengthening the case for the BOJ to quicken the pace of normalisation,” Haddad wrote in a note to clients. BLOOMBERG