San Francisco Frontiers - Dollar slides as rate hike prospects ease, oil gains moderate

Oil prices had jumped sharply on fresh Iran-US strikes, with two ships struck overnight near the Strait of Hormuz.

But those gains faded during the day, with US President Donald Trump reversing course on plans to impose a 20-percent levy on ships transiting the key waterway.

The spike in oil prices over recent days had renewed concerns about renewed inflation and the need for the US Federal Reserve to hike interest rates.

But the latest data showed US consumer inflation dipped in June thanks to a drop in energy prices, which sent the dollar lower as traders saw less likelihood of a hike by the Fed later this month.

The second quarter earnings season also got under way, with JPMorgan Chase reporting a surge in net profit to $21.2 billion, which Yahoo Finance said was the largest quarterly profit in US banking history.

While the inflation and earnings news were positive for stocks, the Dow shed 0.3 percent at the opening bell, pulled down by a 23-percent plunge in IBM shares after it warned second-quarter earnings would disappoint.

IBM released at the start of the quarter a new mainframe processor for AI applications that was well-received by clients, but CEO Arvind Krishna said that in June companies shifted spending towards servers and storage in anticipation of supply constraints and price hikes, leading the company to fall short of its targets.

While IBM suffered from the shift in spending, it was positive for the sector as a whole, with the PHLX semiconductor index rising more than three percent.

The Dow later pushed into positive territory, buoyed by reduced expectations of an interest rate hike following the release of US consumer price index (CPI) data.

The Labor Department said that the CPI rose by 3.5 percent on a year-on-year basis in June, down from a 4.2 percent increase in May.

"This was the largest moderation in US price growth for six years and it drastically reduces the chance of a rate cut at this month's (Federal Reserve's monetary policy committee) meeting," said Kathleen Brooks, research director at XTB trading platform.

The drop in the core rate (excluding food and energy) of price growth to 2.6 percent from 2.9 percent in May "is adding to market confidence that price pressures in the world's largest economy could be temporary", she added.

Earlier Tuesday, the market saw a roughly 40 percent probability of a US interest rate hike this month, but that fell to 13 percent after the CPI data was published.

The market still narrowly sees the Fed as likely hiking rates at its following meeting in September.

The dollar slid against rival currencies after the inflation data was published.

International benchmark Brent North Sea crude rose as much as five percent to trade around $87 a barrel following the fresh attacks in the Strait of Hormuz.

Oil prices later pared gains as Trump backpedalled on his proposed levy on ships in the waterway. He maintained his threat to reimpose a naval blockade on Iranian ports.

Rising oil prices hit European equities early in the day, but they recovered as crude's gains faded.

Asian stocks mostly climbed after tech firms enjoyed some reprieve from the latest bout of selling.

- Key figures around 1530 GMT -

Brent North Sea Crude: UP 1.0 percent at $84.11 a barrel

West Texas Intermediate: UP 0.8 percent at $78.77 a barrel

New York - Dow: FLAT at 52,504.94 points

New York - S&P 500: UP 0.5 percent at 7,553.06

New York - Nasdaq Composite: UP 1.1 percent at 26,156.97

London - FTSE 100: UP 0.3 percent at 10,529.39 (close)

Paris - CAC 40: FLAT at 8,366.39 (close)

Frankfurt - DAX: UP 0.1 percent at 25,147.03 (close)

Tokyo - Nikkei 225: UP 0.7 percent at 67,743.50 (close)

Seoul - Kospi: UP 0.7 percent at 6,856.83 (close)

Hong Kong - Hang Seng Index: UP 0.5 percent at 24,340.73 (close)

Shanghai - Composite: UP 1.4 percent at 3,967.13 (close)

Euro/dollar: UP at $1.1443 from $1.1384 on Monday

Pound/dollar: UP at $1.3399 from $1.3353

Dollar/yen: DOWN at 161.95 yen from 162.43 yen

Euro/pound: UP at 85.41 pence from 85.25 pence

S.Jackson--SFF