By Johann M Cherian and Ankur Banerjee
Aug 26 (Reuters) - Global stocks edged up and weaker oil prices pushed bond yields lower on Wednesday on hopes that the vital Strait of Hormuz could soon reopen, while investors awaited U.S. inflation data and another pivotal earnings report from AI heavyweight Nvidia.
Iran and Oman said they had discussed "a joint temporary navigational corridor" through the Strait of Hormuz and agreed to clear it of mines, rejuvenating hopes for a breakthrough in the nearly
six-month conflict that has roiled oil markets and stoked global inflationary worries.
Brent crude futures fell for a third straight day on Wednesday, sliding nearly 3% to $85.95 per barrel on the prospect of more supply coming through the Strait, which handled a fifth of the world's traded oil before the war.
That helped push short-term bond yields, sensitive to central bank interest rate expectations, lower.
The yield on 2-year German bonds dropped for a second day to a more than one-week low of 2.771%, while that on its U.S. counterpart was steady at 4.195% after falling about 4 basis points on Tuesday. [O/R] [US]
Oil prices have "moved away from that 90+ move, so there is some optimism that they could cool further. But we really need to see the traffic move through the Strait of Hormuz to get more comfortable with the idea that inflationary pressures are cooling considerably," said Fiona Cincotta, a senior markets analyst at City Index.
MSCI's world stocks index was up 0.1%, with Europe's benchmark STOXX 600 pinned at its highest in over one week.
U.S. INFLATION DATA UP NEXT
Markets are now awaiting the U.S. Personal Consumption Expenditures Price Index, due at 1230 GMT, which could help investors gauge the Federal Reserve's monetary policy trajectory for the rest of the year. Wall Street futures were little changed ahead of the report.
Odds for an at least 25-basis-point interest rate hike in September have dropped to 36% from around 67% earlier this month after recent data suggested price pressures were moderating, the CME Group's FedWatch Tool showed. However, rates are still expected to rise by year-end.
"There is potential for one rate hike before the end of the year still, but I don't think it will take place in September given the volatility that we've still seen in oil prices and the division in the Federal Reserve," Cincotta said.
WAITING FOR NVIDIA
Nvidia is scheduled to report second-quarter earnings after U.S. markets close, with the focus on whether the massive AI spending boom is sustainable and can turn profits that will satisfy markets.
The stock has gained 14% this year, on track for its smallest annual gain in four years, as the AI trade broadens out across geographies and sectors.
The chip leader's shares were up 0.3% in U.S. pre-market trading, along with rivals Advanced Micro Devices and Broadcom.
Options data hints at a smaller move in Nvidia's shares after earnings compared to previous profit announcements, suggesting the company's results are becoming somewhat more predictable.
Fixed income and currency markets have been under greater scrutiny since the U.S. Treasury department unveiled measures last week to expand its debt buyback program in an effort to ease the pressure on longer-dated bond yields.
However, the move resulted in the pressure shifting to the dollar from the bond market, reviving the debasement trade, in which investors buy assets such as gold and bitcoin, betting that government spending and debt will erode the value of currencies.
The dollar index, which measures the U.S. currency against six other units, was at 99 but set for a 1% decline for August, while yields on long-term U.S. Treasuries were a touch firmer ahead of the Federal Reserve's Jackson Hole symposium later this week.
Spot gold last fetched $4,618.95 per ounce, just shy of the three-month high it touched in the previous session. Bitcoin was higher at $78,631.59. [GOL/]
(Reporting by Ankur Banerjee in Singapore and Johann M Cherian in Bengaluru; Editing by Sonali Paul, Lincoln Feast and Gareth Jones)
