Global stocks were largely flat on Monday. While optimism surrounding progress in US-Iran talks offered some support, concerns about higher interest rates from the Federal Reserve weighed on market sentiment. US Vice President JD Vance announced that Iran agreed to allow nuclear inspectors into the country, with discussions potentially starting this week. The US Treasury Department also authorized Iranian sales of crude oil and petrochemical products until August 21, easing sanctions as a step towards a peace deal that would include commitments on nuclear inspections and free transit through the Strait of Hormuz.
On Wall Street, the S&P 500 fell 0.37% and the Nasdaq Composite dropped 1.32%, primarily due to declines in communication services and consumer discretionary stocks, as well as a tech sector selloff. The Dow Jones Industrial Average, however, rose 0.29%. European markets saw the STOXX 600 index gain 0.58%, while MSCI's gauge of global stocks dipped 0.03%. In Asia, markets were mixed; Japan's Nikkei 225 jumped 1.6% to a new record, and South Korea's Kospi gained 0.7% to its own record, both driven by AI-related shares like SoftBank Group and SK Hynix. Hong Kong's Hang Seng lost 0.6%, while the Shanghai Composite index was up 1.8%. US futures were trading lower, indicating investor caution.
The prospect of continued US-Iran discussions led to a drop in oil prices. Brent crude futures settled 3.38% lower at $77.90 a barrel, a significant decrease from its May peak of $126.41. US crude oil fell 2.6% to $73.86. Despite this, bond yields rose, with the yield on benchmark US 10-year notes increasing by 5.78 basis points to 4.509%. This rise was attributed to market expectations of a more hawkish Federal Reserve, as policymakers anticipate a rate hike later this year to combat inflation, which remains above the central bank's 2% target. Gerry Sparrow, chief investment officer at Sparrow Capital Management, noted that the market was surprised by the new Fed Chair Kevin Warsh's firm stance on rates, as there was an expectation for a more accommodative approach. Higher US yields kept the dollar firm against the yen, trading around 161.5 yen.
The tech sector experienced significant declines, with major companies like Alphabet dropping 5%, Amazon falling 4.7%, and Broadcom decreasing 4.5%. SpaceX, which had recently debuted on the stock market, fell 16.4% to $154.60, marking its third consecutive drop. This selloff in tech stocks contributed to the negative performance of the S&P 500 and Nasdaq. The ongoing concerns about inflation and the Federal Reserve's potential rate hikes are threatening to slow economies and have already started pushing up rates for mortgages and other loans. Investors are adjusting to a new environment where the Federal Reserve is expected to maintain a tighter monetary policy.
