Oil breaches $100 as Trump signals no quick relief before midterms

Brent crude reclaimed the $100 mark on Monday, making oil the main driver of market activity.

Brent crude stood at $101.60, a gain of $3.68, or 3.76%. Meanwhile, WTI crude added $3.63, or 3.90%, to reach $96.70.

President Trump conceded that bringing oil prices down “would take a little longer,” but predicted a sharp decline after the midterm elections. He also forecast gasoline prices would eventually drop below $2 per gallon. This follows a Labor Day weekend record that saw gasoline above $4.

Candidates in tight races may find little comfort in the prospect of waiting until after the election for any relief.

Oil traders may read the remarks as a bullish cue. The White House does not seem poised to shift policy quickly or launch another TACO, leaving the geopolitical premium in place through November.

Trump added these remarks:

• Regarding Iran, Trump said, “We’re not looking for a deal.”
• He also noted that negotiations could still happen.
• Trump indicated he seeks goals that go beyond nuclear talks.
• He stated his view that the conflict in Ukraine will conclude right after the election.
• A face-to-face encounter with Russian President Vladimir Putin is still an option, according to Trump.
• He described his latest conversation with Putin as “great” and said Putin wants a deal.

Prolonged higher oil complicates inflation outlook

Extended high oil prices are unfavorable for inflation, at least over the near term.

Energy expenses go beyond fuel at the pump, lifting costs for transport, shipping, manufacturing and agriculture. Companies then face a choice: absorb the hit through narrower margins or pass it along to customers.

Should persistently high crude eventually curb consumer spending and slow growth, yields could in time decline. On Monday, however, inflation worries prevailed.

U.S. government bond yields rose across the maturity spectrum:

• The 2-year note yield increased 3.4 basis points to 4.4316%.
• The 5-year note yield rose 4.2 basis points to 4.5284%.
• The 10-year note yield added 3.9 basis points to 4.8427%.
• The 30-year bond yield moved 2.6 basis points higher to 5.2899%.

The 10-year rate touched its highest point since November 2023.

Wall Street ends lower

Rising crude and higher yields weighed on the main U.S. equity benchmarks. The small-cap Russell 2000 led the declines with a 1.32% drop.

The closing figures were:

• The Dow Jones Industrial Average lost 405.04 points, or 0.77%, to settle at 52,386.25.
• The S&P 500 decreased 37.16 points, or 0.48%, to 7,636.37.
• The Nasdaq Composite dropped 168.07 points, or 0.64%, closing at 26,253.34.
• The Russell 2000 fell 38.97 points, or 1.32%, to 2,921.23.
• The Nasdaq 100 slipped 86.15 points, or 0.29%, to 29,421.55.

Higher crude together with higher yields creates a dual threat to equities. Energy costs can compress corporate margins and household spending, while rising yields increase borrowing expenses and make stocks less attractive in comparison.

US dollar mostly weaker with limited moves

The greenback traded mostly weaker, though the moves were fairly small and price action choppy.

The dollar declined against the euro (-0.08%), yen (-0.28%), sterling (-0.06%) and Australian dollar (-0.04%), while gaining versus the Swiss franc (+0.07%), Canadian dollar (+0.17%) and New Zealand dollar (+0.26%). The NZD was the top performer among the currencies listed, and the yen also posted gains, supported by expectations of higher Japanese interest rates.

Japan’s 10-year government bond yield surpassed 3% for the first time since September 1996, almost three decades. Increased domestic yields make local assets more appealing to Japanese investors, potentially reducing outflows and lending support to the yen.

Upcoming inflation data: PPI and CPI

Attention now shifts to two key U.S. inflation releases:

• Thursday at 8:30 AM ET brings the August Producer Price Index.
• Friday at 8:30 AM ET brings the August Consumer Price Index.

The PPI gauges price changes at the wholesale level and can signal cost pressures that may reach consumers. July’s headline final-demand PPI was flat.

The CPI is the more anticipated data point. Consensus forecasts point to a 0.2% monthly rise in core CPI, with the annual headline rate around 3.4%. In July, headline CPI gained 0.1% from the prior month, and core CPI increased 0.2%.

A weaker-than-expected inflation print could offer some relief for bonds and equities. A hotter result, particularly with Brent above $100, would reinforce worries that inflation is proving harder to control.

Traders heading into the next two sessions face a clear takeaway: oil is a concern, inflation is the key theme, and volatility is likely to stay high through the PPI and CPI releases.