Global markets saw a widespread sell-off in stocks and bonds on Tuesday, driven by a surge in oil prices that raised fears of persistent inflation and tighter monetary policy from the Federal Reserve. West Texas Intermediate (WTI) crude topped $90 a barrel, while Brent crude rose 4.6% to settle at $94.65, and US oil climbed 5.2% to settle at $90.22. This oil rally was attributed to escalating conflict between the US and Iran, specifically new US military strikes and the effective closure of the Strait of Hormuz, a crucial oil transit route. This geopolitical tension heightened concerns about supply disruptions and contributed to a 5.9% rise in WTI crude.
The increase in energy costs fueled inflation worries, leading investors to demand greater compensation to hold bonds. The yield on the 10-year Treasury advanced four basis points to 4.79%, reaching its highest level since January 2025. Similarly, the 2-year Treasury yield rose to 4.39%, up from 3.50% at the beginning of 2026. This bond market sell-off signals that investors perceive a higher risk associated with Treasuries, partly due to the U.S. debt surpassing $40 trillion two weeks prior. Higher yields translate to increased borrowing costs for mortgages and other loans, which tends to dampen investments and make business expansion more challenging.
The stock market reacted negatively, with the S&P 500 falling 0.7% to 7,631.47, the Nasdaq 100 dropping 1.3%, and the Dow Jones Industrial Average losing 0.8% to 52,766.88. The MSCI World Index also declined by 0.7%. Technology stocks, particularly Nvidia (down 1.5%), Amazon (down 1.9%), and Advanced Micro Devices (down 2.4%), were hit hard, as their growth, heavily reliant on borrowing for AI buildouts, becomes more expensive with rising interest rates. Forex.com's Fawad Razaqzada noted that "Higher oil prices are threatening to reignite inflation, raising the risks of tighter monetary policy." Money markets are now pricing in a higher probability of a Federal Reserve rate hike in September, with investors betting on a 66% chance of a benchmark rate increase, especially after Fed Chair Kevin Warsh's hawkish comments regarding persistent inflation.
In currencies, the Bloomberg Dollar Spot Index rose 0.2%, while the euro fell 0.2% to $1.1589, the British pound dropped 0.3% to $1.3512, and the Japanese yen decreased 0.3% to 160.22 per dollar. Cryptocurrencies also saw declines, with Bitcoin falling 2% to $77,247.48 and Ether dropping 2.4% to $2,412.93. The sell-off was global, extending to other nations' bonds, with Germany's 10-year yield advancing two basis points to 3.34% and Britain's 10-year yield surging 16 basis points to 5.22%, reaching levels not seen since 2007-08 for 10-year yields and 1998 for 30-year UK government bonds. Spot gold also fell 2.4% to $4,330.08 an ounce.
