San Francisco Frontiers - Stocks drop and oil rises as Hormuz hopes fade

Hopes for an easing of Middle East tensions were dashed at the weekend when Donald Trump rejected Iran's offer for a seven-day truce.

While he said talks would resume this week, that was unable to lift the gloom on trading floors, with traders contemplating further rises in inflation that will force the Fed to tighten monetary policy more.

The US president on Monday denied a report by the news outlet Axios that he offered Iran sanctions relief and the release of frozen funds, as the Middle East war drags on.

"Axios just released a story that 'Trump' offered Sanctions Relief and Frozen Funds to Iran. This is untrue. I offered them NOTHING!," Trump said on his Truth Social platform.

The story said Trump "is willing to give Iran sanctions relief and release Iranian frozen funds in return for concrete Iranian steps regarding the nuclear program", quoting unnamed US officials.

The 80-year-old Republican called the story "a HOAX" and said the news site should withdraw it.

But Iran's state broadcaster said the country's Foreign Minister Abbas Araghchi will meet Qatari representatives.

The talks are expected to focus on "messages exchanged with the United States through intermediaries... particularly regarding the conditions set by Iran for the reopening of the Strait of Hormuz".

However, Tehran officials have privately expressed pessimism about making a deal to reopen Hormuz before November's US midterm elections, Bloomberg reported sources as saying.

The waterway is key to the world's oil and gas deliveries and is now central to the conflict between the US and Iran, particularly with the Iran-backed Houthis seizing Yemen's entire Red Sea coast, including the Bab al-Mandab Strait, another vital shipping lane.

"Our expectations remain that the conflict will be with markets for the foreseeable future and the global economy will continue adjusting to the realities of the supply disruptions," said Ian Lyngen at BMO Capital Markets.

Both main crude contracts rose more than one percent Tuesday, and the lack of any progress in ending the conflict continues to put upward pressure on fuel costs.

Average UK diesel prices have hit a record high, according to the RAC motoring organisation.

Equity markets struggled following a day in the red for all three main indexes on Wall Street.

Tokyo, Seoul, Hong Kong, Shanghai, Singapore, Taipei, Wellington, Manila and Sydney were all down.

Gold held Monday's steep losses to sit around $4,160 as traders bet on more rate hikes, which makes the non-interest bearing metal less attractive.

Investors are also gearing up for the release of key US inflation and jobs data this week that could play a role in the Fed's decision-making, with markets pricing in a second successive rate hike at the end of October.

"The main concern for markets isn't that employment conditions could suddenly weaken. It's almost the opposite," wrote Fiona Cincotta at FOREX.com.

"Economic data has remained surprisingly strong despite higher rates and energy prices," she added.

"Typically, stronger non-farm payrolls (jobs) are positive for stocks, but that is not necessarily the case when inflation is also rising sharply.

"Strong employment could instead strengthen the case for the Fed to keep rates higher for longer, or even hike rates again to bring inflation under control."

In company news, fast-fashion giant Shein fell six percent in Hong Kong after releasing disappointing earnings.

The report was the firm's first since listing at the start of the month following a high-profile US$1.7 billion initial public offering.

- Key figures at around 0230 GMT -

Tokyo - Nikkei 225: DOWN 0.9 percent at 65,307.00 (break)

Hong Kong - Hang Seng Index: DOWN 0.6 percent at 24,491.58

Shanghai - Composite: DOWN 0.3 percent at 3,813.99

West Texas Intermediate: UP 1.3 percent at $93.81 per barrel

Brent North Sea Crude: UP 1.5 percent at $106.90 per barrel

Dollar/yen: UP at 157.44 yen from 157.42 yen on Monday

Euro/dollar: UP at $1.1369 from $1.1367

Pound/dollar: UP at $1.3253 from $1.3252

Euro/pound: UP at 85.80 pence from 85.78 pence

New York - Dow: DOWN 0.7 percent at 51,481.51 (close)

London - FTSE 100: DOWN 0.1 percent at 10,684.88 (close)

C.Williams--SFF