Iran's seven-day Hormuz offer knocks oil lower and lifts stocks to a weekly gain, but the 10-year Treasury yield touches 5.23%
The Middle East headline shifted from Thursday's Houthi missiles to diplomacy. Iranian Foreign Minister Abbas Araghchi, speaking on the sidelines of the UN General Assembly, said Tehran has passed a new proposal to Washington through intermediaries: Iran would reopen the Strait of Hormuz within seven days and resume bilateral talks if the US meets its conditions. Those conditions are a full ceasefire that also covers Lebanon, the lifting of the US naval blockade of Iranian ports, waivers on sanctions for Iranian oil sales, and the release of more than $12 billion in frozen Iranian assets. Araghchi presented this as nothing new, arguing the terms fit the "Islamabad Framework" the two sides reached in June, a deal that collapsed after Iran resumed attacks on shipping. He also noted that a quick reopening would help President Trump by bringing down oil prices and inflation before the midterm elections. The White House has not accepted. Trump said he is "in no rush to reach a deal," and Secretary of State Marco Rubio would only say that if there is a chance to exchange ideas and messages, "we will." Qatar's prime minister met President Masoud Pezeshkian, which confirms Doha's role as mediator.
That was enough for oil traders to take some risk premium out, even with Houthi attacks on Saudi Arabia continuing. Brent settled around $104-105/bbl, down roughly 2% on the day (settlement figures differ slightly by source and contract), after touching $108 on Thursday. WTI fell 2.3% to $92.41. The two benchmarks ended the week in very different places: Brent is up about 1.5% on the week, while WTI is down about 7.4%. That gap is the subject of today's closing section.
02Stock market & economy
Lower oil gave equities a relief rally to end a volatile week. The S&P 500 rose 0.51% to 7,743.41, the Nasdaq Composite gained 0.48% to 27,068.72, and the Dow climbed 478.64 points, or 0.93%, to 51,828.62, snapping its three-day losing streak. All three posted a gain for the week. Small caps lagged again, with the Russell 2000 up just 0.07%, which fits with how much rates weigh on smaller companies. The bond market did not join the relief. The 10-year Treasury yield touched 5.23% on Friday, its highest level since 2007, before closing around 5.18%. It was below 5% as recently as Tuesday and started the year around 4.2%. Besides sticky inflation and the prospect of more Fed hikes, heavy bond issuance has become a bigger driver this year: large government deficits plus a wave of corporate borrowing to fund AI data centres. Gold rose about 0.5% to around $4,320/oz on the day but still lost roughly 2% on the week, held back by the dollar at a two-month high and real yields near two-decade highs.
The data showed households under strain. The University of Michigan's final September consumer sentiment reading came in at 48.1, a four-month low and 15% below January, although slightly above the 47.8 preliminary estimate. More worrying for the Fed, year-ahead inflation expectations jumped to 4.6% from 4.0% in August, compared with 3.4% in February before the Iran war began, and five-year expectations rose to 3.4%. Rising inflation expectations are exactly what the Fed's hawks have warned about, and they support the case for another hike at the late-October meeting. On single stocks, Meta ended the week up about 13% on the Muse momentum. Nike slipped 0.7% to $35.75 after Bank of America downgraded it to Underperform with a $30 target, citing China and intense competition. Costco beat fourth-quarter estimates with revenue of $95.72 billion, but the debate over membership trends kept the shares from rallying much. The Trump-Xi summit ended with little progress on trade or AI beyond the tariff-truce extension to 10 January already announced, though the two sides did announce a follow-up summit in Shenzhen in November.
Europe had a better day as well. The AEX rose 0.5% to 1,112.09, helped by ArcelorMittal and the chip names ASMI, ASML and Besi, which recovered part of Thursday's losses. Shell (-0.9%) and SBM Offshore (-1.9%) fell with crude. The DAX gained 0.56% to 25,408.64, the FTSE 100 added 0.14% and the CAC 40 slipped 0.04%. The STOXX 600 ended around 638.65, up about 0.5% for the week, which snaps a three-week losing streak.
For the unhedged USD sleeve (MSCI World ETF, S&P 500 ETF, High Dividend Yield ETF), the week ended on a positive note in local terms, led by mega-cap tech such as Meta. But the balance of risks has not really changed. A 10-year yield near 5.2% keeps raising the bar for equity valuations, especially for the long-duration tech names that dominate MSCI World ETF and S&P 500 ETF. A firm dollar also helps these funds when measured in euros, while it lasts. High Dividend Yield ETF's energy holdings were a small drag on Friday as crude fell. For AEX index ETF and EURO STOXX 50 ETF, a lower oil price is good news on both fronts: it eases pressure on eurozone inflation, which is 3.3% after the ECB raised its deposit rate to 2.5% on 10 September, and it helps the energy-importing economies that make up most of the EURO STOXX 50. The flip side is that the AEX has a heavy Shell weighting, so it gains less from falling oil than the wider European market. Higher US long-end yields also tend to pull Bund yields up with them, which limited European gains on Friday.
03Also in the news
Russia-Ukraine diplomacy took a step back. Bloomberg reported that Trump again urged Zelensky to travel to Moscow to meet Putin during their UN meeting this week, and Zelensky refused. People familiar with his position said he was upset that Trump raised it. This follows the Kremlin's dismissal on Thursday of the "energy ceasefire" Rubio floated. Zelensky has said Kyiv remains ready for a bilateral energy truce, but he also warned that Russia is preparing "a new massive attack." For European portfolios, the hope of lower winter gas prices from an energy truce now looks further away.
04Off the beaten path
why WTI and Brent are drifting apart
Normally, the two main oil benchmarks move closely together. Brent is priced off North Sea crude and reflects the global seaborne market, while WTI is priced at Cushing, Oklahoma and reflects the US market. When the gap between them gets wide, US producers normally ship more crude abroad to capture the higher price, and that pulls the two back together. This week the gap briefly reached about $12.83 a barrel, the widest since May. Brent ended the week higher while WTI fell more than 7%.
Two things are stopping the usual fix from working. The first is shipping costs. According to Cornerstone Futures, sending a very large crude carrier from the US Gulf Coast to Asia now costs about $50 million, more than triple the pre-war rate of about $16 million. That means US crude needs a discount of roughly $8 a barrel, rather than the old $4, before exporting makes sense, so exports have barely moved. The second is the risk of a US ban on diesel exports, which the market has been pricing as domestic diesel prices hit a record of about $6.53 a gallon. Wood Mackenzie estimates such a ban would trap around 700,000 barrels a day of diesel at home and could force refiners to cut crude runs by more than 2 million barrels a day, or about 12%. Less refining means less demand for US crude, which pushes WTI down relative to Brent.
For a European investor, the important point is that Brent is the benchmark that matters. It sets the price of most of the oil and fuel Europe imports, so a cheaper WTI does little for eurozone inflation or the ECB's rate path. It also means the headline "oil fell 7% this week" is misleading from a European point of view: the global price actually rose. For companies, a wide spread helps US refiners, which can buy cheaper domestic crude, and hurts US producers, which feature in the S&P 500 and High Dividend Yield ETF. A diesel export ban, if it actually happens, would be a much bigger shock, as it would tighten fuel supplies in Europe, which has relied on US diesel since sanctions cut off Russian imports. That is the thing to watch.
Compiled from Yahoo Finance, TheStreet, CNBC, Bloomberg, Financial Times (via Welingelichte Kringen/ANP), The Washington Times, AP (via Live 5 News), IranWire, The National, OilPrice.com, Cornerstone Futures, EnergyNow, Trading Economics, USAGOLD, Quartz, CNN Business, The Motley Fool, 24/7 Wall St., Train2Invest, De Aandeelhouder, and Fortune. This is a news summary, not investment advice — no position sizing or timing recommendations are implied.