New york: Global markets experienced a downturn on Tuesday as escalating military tensions between the United States and Iran raised alarms over the stability of global energy supplies. This development has resulted in rising oil prices and has fueled speculation that major central banks may need to maintain tighter monetary policies.
According to Anadolu Agency, investors have turned their attention to the upcoming US inflation data, set to be released later on Tuesday. There are growing concerns that the spike in energy prices could contribute to inflationary pressures and lead to an increase in bond yields. Amidst these developments, US President Donald Trump announced the reinstatement of the American blockade in the Strait of Hormuz, along with a 20% transit fee on all vessels passing through this critical waterway.
The situation further escalated with statements from the Khatam al-Anbiya Central Headquarters, the Iranian Armed Forces unit responsible for military operations, declaring its resistance to US interference in the Strait of Hormuz. Meanwhile, Iranian Foreign Ministry spokesperson Esmail Baghaei acknowledged that negotiations between the US and Iran have reached a crisis stage.
The UAE Defense Ministry reported that two UAE-owned tankers in the southern corridor of the Strait of Hormuz were targeted by Iranian cruise missiles, resulting in the death of one crew member and injuries to eight others. These conflicting claims over control of the Strait of Hormuz and renewed regional attacks have heightened investor caution and undermined diplomatic efforts, raising fears of a prolonged conflict.
The growing geopolitical tensions have intensified concerns about potential disruptions to global energy supplies through the strategic waterway. This has exacerbated inflation worries and increased risk aversion in financial markets. Investors are closely monitoring the upcoming US consumer price index release, as Federal Reserve Governor Christopher Waller suggested that the central bank might need to further tighten monetary policy if core inflation remains elevated.
In additional developments, Federal Reserve Chair Kevin Warsh is scheduled to present the central bank's monetary policy report to Congress on Tuesday. Market participants are also eagerly awaiting earnings reports from major US banks, including Bank of America, Wells Fargo, Citigroup, Goldman Sachs, and JPMorgan.
In related news, the US Treasury Department reported a $120 billion federal budget deficit in June, which was lower than market expectations. Concurrently, Brent crude oil prices surpassed $85 per barrel for the first time since June 12, driven by renewed US strikes on Iran. By Tuesday morning, Brent was trading 1.6% higher than Monday at $84.20 per barrel, reinforcing expectations that the Federal Reserve could maintain higher interest rates for an extended period.
The yield on the US 10-year Treasury note rose seven basis points to 4.63% on Monday and remained relatively steady at 4.64% on Tuesday. The US Dollar Index dipped 0.1% to 101.2 after a 2.6% decline on Monday, while gold prices increased by 0.5% to $4,021 per ounce.
US stock markets closed lower on Monday due to the renewed geopolitical tensions and losses in semiconductor shares. Notable declines included Micron Technology, which fell 4.3%, SanDisk with a 12.6% loss, AMD dropping 4.2%, and Intel decreasing by 6.1%. The Dow Jones Industrial Average fell 0.26%, the S and P 500 lost 0.79%, and the Nasdaq Composite dropped 1.55%. US markets opened with mixed results on Tuesday.
Despite mounting geopolitical tensions, European markets closed higher on Monday, buoyed by gains in telecommunications and energy shares. The UK's two-year government bond yield rose 13 basis points to 4.34%, reflecting expectations of a potential interest rate hike by the Bank of England later this year.
In a separate development, the European Union imposed sanctions on Russian intelligence officers, hackers, and affiliated companies for alleged cyber activities targeting European countries. The EU also approved new regulations to strengthen 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 with mixed performance on Tuesday.
Asian markets also faced declines, with China's exports surging 27% in June compared to the previous year, accelerating from a 19.4% increase in May. The Bank of Korea is expected to raise interest rates on Thursday following inflation reaching 3.2%, the highest level in two and a half years. Japan's industrial production increased by 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%.