Global stock markets experienced a downturn the day after the US launched strikes against Iran and President Donald Trump declared the ceasefire between the two nations to be over. This geopolitical shift led to a rally in oil prices and a spike in bond yields, as investors began to factor in the possibility of renewed inflationary pressures and potential interest rate hikes. Brent crude advanced 6.3% towards $79 a barrel, while Brent crude rose 6.2% to $78.79 a barrel, and US benchmark crude surged 5.8% to $74.55 a barrel. Spot gold fell 1.4% to $4,050.59 an ounce. The US also revoked a waiver that allowed the sale of Iranian oil, further fueling concerns.
Major equity indexes, including the S&P 500 futures, Nasdaq 100 futures, Dow Jones Industrial Average futures, MSCI Asia Pacific Index, and MSCI Emerging Markets Index, all saw declines ranging from 0.8% to 1.5%. Bonds tumbled in Europe, with the yield on 10-year gilts jumping 10 basis points to 4.95%, the highest level in nearly a month. Treasuries extended their selloff, with two-year yields rising three basis points to 4.22% and 10-year Treasuries advancing three basis points to 4.58%. The Bloomberg Dollar Spot Index rose 0.1%.
Analysts attributed the market's reaction to the escalation of US-Iran tensions and the ending of the June memorandum of understanding, which had previously been viewed as a durable de-escalation. Skylar Montgomery Koning, a macro strategist, noted that while the tensions represent a downside risk, a larger increase in commodity prices would be needed for a material impact on equity markets. However, other strategists like Nick Twidale from AT Global Markets and Sean Keane from JB Drax Honore highlighted that the oil price spike and the revoked Iranian oil waiver strengthen the case for central banks to consider precautionary rate hikes to manage potential second-round inflation. The uncertainty also adds to volatility already present from concerns about the AI-fueled tech rally.
Cryptocurrencies also felt the impact, with Bitcoin falling 2.7% to $61,922.8 and Ether falling 2.9% to $1,731.74. The Kospi in South Korea extended its losses to 20% from its previous month's high, largely due to a rotation in the AI trade away from semiconductors. Meanwhile, Alibaba Group Holding Ltd. jumped 12% in Hong Kong. Temasek Holdings Pte, Singapore's state-owned investor, increased its exposure to artificial intelligence and the Americas, raising its net portfolio value to S$518 billion ($401 billion).
