Global equities and bonds experienced declines, while oil prices jumped significantly after President Donald Trump announced that the ceasefire with Iran might be over, signaling further US strikes. Almost 400 shares in the S&P 500 fell, contributing to a 0.8% drop for the index. The Nasdaq 100 fell 0.6%, and the Dow Jones Industrial Average decreased by 1.4%. The Stoxx Europe 600 was down 1.5%, and the MSCI World Index fell 1%. Cryptocurrency markets also reacted negatively, with Bitcoin sinking 2.9% to $61,822.26 and Ether falling 3.1% to $1,727.6.
The renewed hostilities in the Persian Gulf, following attacks on ships in the Strait of Hormuz and the revocation of waivers allowing Iran to sell oil, caused crude prices to rise sharply. West Texas Intermediate (WTI) crude increased 7.1% to $75.43 a barrel, while Brent crude climbed 6.2% to 8% to $78.79-$80.09 a barrel. This surge in oil prices reignited inflation concerns, prompting money markets to increase bets on a Federal Reserve interest rate hike by October. Veteran strategist Ed Yardeni noted that the rupture in the ceasefire could accelerate price growth, compelling the Fed to tighten monetary policy. Bond yields also reacted, with the yield on 10-year Treasuries advancing four basis points to 4.59%, Germany's 10-year yield increasing eight basis points to 3.08%, and Britain's 10-year yield rising 11 basis points to 4.96%. Spot gold, typically a safe haven, fell 1.6% to $4,040.55 an ounce.
Analysts provided varied perspectives on the market's reaction. Angelo Kourkafas from Edward Jones pointed out that despite the spike in oil prices and higher bond yields contributing to a nearly 10% equity-market correction in the first half, the economy has shown resilience. However, Michael Ball, a Macro Strategist for Markets Live, cautioned that "Rising volatility in oil due to renewed US-Iran tensions will be a bigger headwind to risk sentiment than prices in the $70s." Skylar Montgomery Koning, a macro strategist at Bloomberg, suggested that a much larger increase in commodity prices would be needed to materially impact equity markets, as markets initially treated the June memorandum of understanding as a durable de-escalation, a complacency that now looks fragile. Hamad Hussain at Capital Economics anticipates continued oil price volatility and upward pressure in the coming months but expects Brent crude to settle near current levels by year-end, assuming a ceasefire holds.
