Key facts
- Oil prices surged due to escalating Middle East conflict and fears of Strait of Hormuz closure.
- Brent crude rose 3.0% to $78.22 a barrel, and US crude added 2.4% to $73.75.
- Tech stocks and global equity indices fell sharply.
- US government bond yields rose, with two-year Treasury yields hitting their highest since February 2025.
- The dollar index edged down, while the euro and yen saw mixed movements against the greenback.
Global markets experienced a downturn as escalating conflict in the Middle East, particularly renewed missile and drone assaults between US and Iranian forces and Iran's closure of the Strait of Hormuz, sent oil prices surging. Brent crude rose 3.0% to $78.22 a barrel, and US crude climbed 2.4% to $73.75.
This surge in oil prices, coupled with concerns over the sustainability of AI-related stock valuations, led to a sharp decline in tech stocks and broader equity markets. The MSCI world stocks index fell 0.31%, Europe's STOXX 600 dropped 0.10% with tech stocks down 0.70%, and US futures indicated further losses. Japan's Nikkei fell 1.9%, and South Korea's Kospi sank 7.6%, with US-listed shares of SK Hynix down 9.3% in pre-market trading.
Government bond yields rose, with two-year Treasury yields reaching their highest level since February 2025 at 4.2393%. The dollar index saw a slight decrease of 0.08% to 100.87, as the Federal Reserve's rate outlook came under scrutiny ahead of Chair Kevin Warsh's congressional testimony. The euro gained 0.18% to $1.1433, while the dollar strengthened against the yen.
Analysts at RBC BlueBay Asset Management suggested that a market sell-off due to Middle East escalation could present an attractive entry point for adding risk, unless US administration policy shifts significantly. Jefferies economist Mohit Kumar noted that President Trump might be amenable to a deal to keep oil prices in check before the mid-term elections. BofA highlighted concerns about the AI capital expenditure boom, while Citi maintained an overweight stance on global IT and US equities, pairing growth exposures with cyclical sectors.