Brent crude prices surged over 2% to nearly $95.20 a barrel following US military strikes on multiple targets in Iran for the second consecutive day. This geopolitical tension has led to a 1% drop in MSCI’s gauge for Asian equities, marking its fifth loss in six days.
Wall Street equity-index futures also retreated after a drop in the underlying gauges during the US session. The Nasdaq 100 Index fell by 2% as traders were unsettled by a renewed selloff in major tech companies. Meanwhile, gold prices extended losses to around $4,050 an ounce amid concerns that rising oil prices could lead to higher interest rates.
The dollar showed slight strength against most Group-of-10 currencies, and Treasury futures fell as geopolitical tensions escalated with Iran's announcement of the closure of the Strait of Hormuz to all vessels. The strikes have injected fresh volatility into markets, potentially tightening crude oil supplies and risking renewed inflationary pressures.
“Investors remain skittish despite being thrown a lifeline by the inflation figures.”
Chris Beauchamp, Chief Market Analyst at IG
Despite a softer-than-expected US inflation report offering a brief reprieve, traders continue to anticipate higher borrowing costs. The selloff in semiconductor stocks has cast doubt on the sustainability of the record equity rally. In the US, shares of chipmakers and AI infrastructure companies, this year’s biggest winners, fell for a second day, with Nvidia Corp. dropping 3.7%, Broadcom Inc. 5.1%, and Super Micro Computer sliding 28% after announcing a $7 billion equity raise.
Elsewhere, the yen held near 160.50 per dollar as Bank of Japan Governor Kazuo Ueda was hospitalized, potentially missing the next policy meeting. The US core consumer price index increased by 0.2% from April, below the 0.3% consensus forecast, yet bond traders still anticipate a Fed rate hike by year-end.
“Markets retain a suspicion that this will be another brief episode of sound and fury signifying not much, so a degree of caution in positioning seems warranted.”
Sean Callow, Senior Analyst at ITC Markets
Background
The US military strikes on Iran come amid escalating geopolitical tensions, with the closure of the Strait of Hormuz threatening to disrupt global oil supplies. This has added to market volatility, already heightened by concerns over inflation and interest rate hikes.
The ongoing geopolitical tensions and market volatility underscore the need for investors to remain cautious. As the situation develops, market participants will closely watch for further military actions and their potential impact on global markets.
