Oil prices jumped, and bond yields rose on Wednesday as renewed hostilities in the Middle East and new US sanctions on Iranian oil threatened the existing ceasefire. Brent crude futures were up 2% to $75.60 a barrel, a significant increase that unsettled the bond market due to heightened inflation risks, especially as global oil inventories have been drawn down over months of conflict. The US strikes targeted Iranian air defenses, coastal surveillance, and drone launch sites, following Iranian attacks on three commercial vessels in the Strait of Hormuz. Iran's military command has vowed a "crushing response." Additionally, Washington withdrew a concession that previously allowed Iran to sell oil on the global market, a move Iran's foreign ministry labeled as a breach of the peace framework.
Following these developments, ten-year US Treasury yields climbed approximately three basis points to a one-month high of 4.565%. The market reaction, however, was not characterized as "full-blown panic mode," according to Jason Wong, senior strategist at BNZ. Experts, like Invesco's David Chao, noted that current Brent prices might not fully reflect the geopolitical risk from continued flare-ups in the Middle East. Data showing US Strategic Petroleum Reserve stocks at their lowest since 1983 further exacerbated market vulnerability to potential supply shocks.
Meanwhile, stock markets experienced volatility. Asian equities had a shaky day, with Hong Kong showing gains that kept MSCI's broader Asian index outside Japan flat, while South Korea's chip-heavy market fell 1.5%. Samsung Electronics, despite flagging a 19-fold increase in profit, saw its stock fall 7% on Wednesday, contributing to a 4.6% decline in the Philadelphia semiconductor benchmark. This tech downturn, characterized as "short term profit taking on long-term winners, particularly the AI theme," by Sara Perring of J.P. Morgan, impacted global markets, with the Nasdaq falling below its 50-day moving average.
