Stocks edge up ahead of US-China meeting; oil rallies on US-Iran stalemate

NEW YORK: US equity indexes inched ahead to record closing highs while the dollar edged higher on Monday (May 11), as investors awaited a meeting between US President Donald Trump and Chinese President Xi Jinping.

Oil prices rallied as Trump said the US ceasefire with Iran was "on life support", after dismissing Tehran's response to a US peace proposal as "stupid". 

His remarks stoked worries that the 10-week-old conflict will drag on, paralysing shipping through the Strait of Hormuz.

Iran's response had focused on ending the war on all fronts and Tehran demanded compensation for war damage, emphasised its sovereignty over the Strait of Hormuz, and called on the US to end its naval blockade, guarantee no further attacks, lift sanctions and remove a ban on Iranian oil sales.

But, with the Middle East expected to be a key part of the agenda this week at Trump and Xi's first face-to-face talks in more than six months, Scott Wren, senior global market strategist at Wells Fargo Investment Institute, said that investors were cautiously hopeful for some progress toward peace.

"It's all about the strait and when it's going to open," said Wren. "There's some optimism that China will have some influence in resolving the strait issue."

On Wall Street, the S&P 500 rose 13.91 points, or 0.19 per cent to 7,412.84 and the Nasdaq Composite rose 27.05 points, or 0.10 per cent, to 26,274.13, record closing highs for both. The Dow Jones Industrial Average rose 95.31 points, or 0.19 per cent, to 49,704.47, still shy of its Feb 10 record close.

MSCI's gauge of stocks across the globe rose 2.38 points, or 0.22 per cent, to 1,108.01. Earlier the pan-European STOXX 600 index closed up 0.11 per cent.

In currencies, the dollar retreated from session highs after Trump's rebuff of Iran's response kept concerns about an extended war intact.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.05 per cent to 97.96, with the euro down 0.06 per cent at US$1.1777.

Against the Japanese yen, the dollar strengthened 0.37 per cent to 157.23.

Sterling weakened 0.16 per cent to US$1.361 as British Prime Minister Keir Starmer attempted to quell a rebellion within his ruling Labour party following a mauling in last week's local elections.

In energy markets, oil prices settled up nearly 3 per cent after Trump's comments fueled supply fears as the Strait of Hormuz stayed largely closed with no clear end in sight for the war.

US crude settled up 2.78 per cent, or US$2.65 at US$98.07 a barrel. Brent rose to US$104.21 per barrel, up 2.88 per cent, or US$2.92 for the day.

US Treasury yields rose as rising oil prices stoked inflation worries.

The yield on benchmark US 10-year notes rose 4.6 basis points to 4.41 per cent, from 4.364 per cent late on Friday. The 30-year bond yield rose 3.6 basis points to 4.9835 per cent.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 5.9 basis points to 3.952 per cent.

Gold prices reversed course to rise in volatile trading on Monday, as investors assessed developments in US-Iran diplomacy and waited for key US inflation data due later this week.

Spot gold rose 0.44 per cent to US$4,735.39 an ounce. US gold futures rose 0.15 per cent to US$4,727.70 an ounce.