Oil prices surged and bonds declined on Wednesday as renewed fighting in the Middle East and new U.S. sanctions on Iranian oil threatened the ceasefire. Brent crude futures rose about 2-3.2% to $75.60-$76.54 a barrel. This, alongside the lowest U.S. Strategic Petroleum Reserve levels since 1983, wobbled the bond market by raising inflation risks. Ten-year U.S. Treasury yields climbed approximately 3 basis points to a one-month high of 4.565%, with 30-year yields breaking above 5%.
The U.S. actions included airstrikes on Iran and the withdrawal of a concession that allowed Iran to sell oil globally, which Iran's foreign ministry stated breached the existing peace framework. The U.S. Central Command confirmed launching strikes against Iran in response to attacks on commercial shipping in the Strait of Hormuz. Analysts warned that the current Brent pricing may not fully factor in potential future flare-ups from the Middle East, as shipping through the Strait remains vulnerable and global oil inventories are drawn down.
Global stock markets reacted with volatility. While U.S. and European stock futures were broadly steady, Asian markets were shaky and volatile. Japan's Nikkei fell 1.2%, and the Nasdaq fell through its 50-day moving average, dropping 3% in some reports. Shares in Samsung Electronics slid despite a 19-fold profit increase, contributing to a 5% drop in Seoul's stock market, putting it near bear market territory from last month's peak. The AI-fueled rally in tech stocks showed signs of losing momentum, with some analysts attributing global market shifts to short-term profit-taking on long-term winners in the AI sector.
Investors shifted focus to geopolitical tensions, which now threaten to overshadow the recent AI and tech sentiment that had driven market moves. This escalation introduces another layer of uncertainty, risking renewed disruption in energy markets and potentially undermining the interim U.S.-Iran peace deal. The spike in oil prices and removal of the Iranian oil waiver could also strengthen the argument for central banks to deliver precautionary rate hikes to mitigate the risk of second-round inflation.
