Decline of Oil Price Extended in Spite of Iranian Attacks on Tankers
October 6, 2026
Oil price movements continue to dominate other financial markets. Despite stepped-up attacks by Iran on ships in the Strait of Hormuz, a downtrend has continued in the cost of oil that followed the G7 agreement to release some emergency stockpiled diesel and resumed oil flowing through the Saudi East-West pipeline. The prices of both West Texas Intermediate crude and Brent are both down somewhat more than 2% compared to yesterday closing levels and 5.5-6.5% lower than highs just before the weekend.
When the cost of oil falls, so has the value of the dollar, which depreciated overnight by 0.4% against the euro, sterling and peso, 0.7% versus the peso, 0.3% relative to the kiwi and won, and 0.1% vis-a-vis the Swiss franc and Canadian dollar. The euro has also been penalized by unsettled political conditions in France (fiscal problems and street protests) and Spain where Prime Minister Sanchez has called for snap elections to be held November 29. Hawkish remarks from Bank of Japan Governor Ueda suggesting a possible rate hike at the next Board meeting allowed the yen to buck the overnight trend of other currencies and slip 0.1%.
Since highly elevated energy costs have been a main driver of inflation this year, today’s lower oil price has exerted downward pressure on long-term interest rates. The ten-year U.S. Treasury yield of 5.26% is down from yesterday’s multi-decade high of 5.33%. Comparable sovereign debt yields have plunged 13 basis points in France, Italy and Greece, by 8 bps in Spain, 6 bps in the U.K., 4 bps in Canada, and 3 basis points in Germany and Switzerland. It’s a different story in the Pacific Rim where those yields climbed 7 bps, 6 bps, 7 bps in New Zealand, 6 bps in Australia and a single basis point in Japan.
Rekindled interest in riskier assets have sent equities up 1.1% in Japan, 1.0% in India and Hong Kong, 1.2% in Indonesia and so far by 0.4-0.9% in major European centers. Key U.S. stock market barometers in futures trading are around 0.5% more elevated.
Gold and silver prices have risen, whereas crypto quotes are lower.
Juxtaposed against America’s prolonged war against Iran, a substantial widening of the U.S. goods and services trade deficit ballooned from $71.2 billion in June to $92.8 billion in July and a 17-month high of $105.6 billion in August reported this morning.
Economic growth has not been spared in countries not involved in the war. The volume of retail sales in the euro area, for instance, has evolved since April with the following sequence of monthly changes: -0.4% that month, +0.2% in May, +0.3% in June, -0.6% in July and +0.1% in August. After a 2-year low year-0n-year increase of 0.4% in July, August’s 0.8% on-year increase was only a third as much as 2.4% recorded last March.
Due to plunging large-scale capital goods orders, overall German industrial orders dropped 10.6% on month in August, and their June-August average level was 1.3% lower than in March-May.
Euroland’s construction sector continues to exert a noticeable drag on that economy. The construction purchasing managers index has been in contractionary territory (that is south of 50.0) since May 2022. The latest reading for September was 43.0. The individual readings for France and Italy were at 2-month highs of 43.5 and 46.5, But Germany’s 2-month low of 43.5 was particularly disturbing.
Compared to a 6-year low in May of 38.2, the British construction PMI‘s 8-month high in September shows welcome improvement, but at 46.1 still conveys a sector that is still shrinking at an appreciable pace.
Industrial production in France fell 0.3% in August and was just 0.3% higher than a year earlier — even less than the 0.7% average increase registered in 2025. Spanish industrial production fell 0.7% in August, and the 1.5% on-year increase was only marginally more than last year’s average 1.3% advance. Latvian industrial production was up 0.3% both month-on-month and year-on-year.
Hungary did better in that department. Industrial output there climbed 1.0% on month and 8.7% on year. Retail sales in Hungary were 2.4% above their year-earlier level in August.
Hong Kong’s private sector purchasing managers index slid to a 5-month low in September and was below the 50 threshold for a second straight month at 49.2.
In India, the September composite and service sector purchasing manager indices were each revised somewhat below preliminary estimates but constitute 3-month highs of 55.9 and 55.2.
Canada’s August trade figures were distorted by U.S. tariff warfare which caused Americans to gobble up Canadian goods ahead of the latest levy increase. Canada’s surplus as a result soared to a 51-month high and more than five times greater than the August 2025 surplus.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: construction PMIs in Euroland and U.K., Euroland retail sales, German industrial orders, U.S. and Canadian trade balances
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