Amid expanding risks from the Middle East, some expect a "surprise rate hike" could be possible at next week's Federal Open Market Committee (FOMC).
Byun Jun-ho, a researcher at IBK Securities, said in a report on the 11th that "the Iran situation is worsening as it expands into clashes involving the United States and China, pushing up oil prices and driving increases in commodity prices," adding, "caution ahead of next week's FOMC is expected to grow."
He said, "As Brent crude has surged about 30% in the second half, breaking above $100 again, and West Texas Intermediate (WTI) is also continuing its upward trend, inflation concerns are being stoked, further strengthening the case for higher market rates and a benchmark rate hike."
On the previous day, October-delivery WTI futures ended the session at $102.48 per barrel, up $6.43, or 6.69%, from the prior session. November-delivery Brent futures also finished up 6.34% at $107.63.
Byun flagged the possibility that Middle East risks could become prolonged. He noted, "The problem is that the current expansion of Middle East clash issues could continue through the timing of the U.S. midterm elections or beyond," adding, "Iran may try to keep the issue going so that Republicans are disadvantaged in the midterms, and Trump has also said he would end the Iran war at the time of the midterms or later, so immediate relief is unlikely."
He cited not only oil but also the broader rise in commodity prices as a factor pressuring rate hikes.
He analyzed, "Due to increased investment in AI data centers and power grids, the rise in copper prices is becoming entrenched, and concerns about crop yields from summer heat waves have sent agricultural prices such as coffee, cocoa and sugar soaring since June," adding, "As broad-based strength appears across commodities, the global commodity price index has surpassed the high set in the spring when the Iran situation broke out, marking a new high for the year."
He added, "The 10-year U.S. Treasury yield climbed to 4.97% overnight, nearing the October 2023 peak of 4.99%," and said, "The issue of breaking the previous peak and exceeding 5% is likely to have a negative psychological impact on the stock market."
He continued, "According to FedWatch, the probability of a rate hike in September has risen to around 60%," adding, "Given the strong U.S. employment data for August and the recent surge in oil prices, a surprise rate hike cannot be ruled out."