Markets trade negative as Middle East tensions threaten global energy supply

Global markets traded lower on Tuesday as renewed military escalation between the US and Iran raised concerns over global energy supplies, driving oil prices higher and increasing expectations that major central banks could maintain tighter monetary policies.

Investors remained focused on US inflation data due later Tuesday amid growing concerns that higher energy prices could fuel inflation and push bond yields higher.

US President Donald Trump said the American blockade in the Strait of Hormuz has been reinstated, while a 20% transit fee will be imposed on all vessels transiting through the waterway.

The Khatam al-Anbiya Central Headquarters, the Iranian Armed Forces unit overseeing military operations, said it would not allow Washington to intervene in the Strait of Hormuz.

Iranian Foreign Ministry spokesperson Esmail Baghaei said negotiations between the US and Iran has entered a crisis period.

The UAE Defense Ministry said two UAE-owned tankers in the southern corridor of the Strait of Hormuz were targeted by Iranian cruise missiles, killing one crew member and injuring eight others.

Conflicting claims over control of the Strait of Hormuz and renewed attacks in the region heightened investor caution and damaged diplomatic efforts, increasing concerns over the possibility of a prolonged conflict.

The escalation also intensified fears of disruptions to global energy supplies through the strategic waterway, adding to inflation concerns and risk aversion in financial markets.

Investors are also monitoring the US consumer price index due later Tuesday. Federal Reserve Governor Christopher Waller said the central bank may need to tighten monetary policy further if core inflation remains elevated.

Federal Reserve Chair Kevin Warsh is scheduled to present the central bank’s monetary policy report to Congress on Tuesday.

Market participants are also awaiting earnings reports from major US banks, including Bank of America, Wells Fargo, Citigroup, Goldman Sachs, and JPMorgan.

The US Treasury Department reported a $120 billion federal budget deficit in June, lower than market expectations.

 

Brent crude surpasses $85

Brent crude rose above $85 a barrel for the first time since June 12 as supply concerns intensified following renewed US strikes on Iran. By Tuesday morning, Brent was trading 1.6% higher than Monday at $84.20 a barrel.

Rising oil prices strengthened expectations that the Federal Reserve could keep interest rates higher for longer.

The yield on the US 10-year Treasury note rose seven basis points to 4.63% on Monday and was little changed at 4.64% on Tuesday.

The US Dollar Index edged down 0.1% to 101.2 after falling 2.6% on Monday, while gold rose 0.5% to $4,021 per ounce.

US stocks closed lower on Monday as renewed geopolitical tensions and losses in semiconductor shares weighed on sentiment. Micron Technology fell 4.3%, SanDisk lost 12.6%, AMD declined 4.2%, and Intel dropped 6.1%.

The Dow Jones Industrial Average fell 0.26%, the S&P 500 lost 0.79%, and the Nasdaq Composite dropped 1.55%. US markets opened mixed on Tuesday.

European markets ended higher on Monday despite escalating geopolitical tensions, supported by gains in telecommunications and energy shares.

The UK’s two-year government bond yield rose 13 basis points to 4.34% as markets continued to expect the Bank of England to raise interest rates later this year.

The EU also imposed sanctions on Russian intelligence officers, hackers and affiliated companies over alleged cyber activities targeting European countries and approved new rules strengthening air passenger rights.

On Monday, the UK’s FTSE 100 gained 0.1%, France’s CAC 40 rose 0.31%, Germany’s DAX 40 added 0.19% and Italy’s FTSE MIB 30 advanced 0.37%. European markets opened mixed on Tuesday.

Asian markets also traded lower.

China’s exports rose 27% in June from a year earlier, accelerating from a 19.4% increase in May.

The Bank of Korea is expected to raise interest rates on Thursday after inflation reached 3.2%, its highest level in two and a half years.

Japan’s industrial production increased 0.1% in May from the previous month but fell 2.1% from a year earlier.

Near Tuesday’s close, Japan’s Nikkei 225 fell 0.1%, South Korea’s Kospi declined 0.4%, China’s Shanghai Composite lost 0.7% and Hong Kong’s Hang Seng Index dropped 0.5%.