Key facts
- World stocks rallied, with gains in semiconductor shares offsetting concerns over the U.S.-Iran conflict and rising oil prices.
- The Japanese yen fell to a 40-year low against the U.S. dollar, trading above 163.
- U.S. Treasury yields increased, and the yield curve bore flattened.
- Oil prices rose, with Brent crude touching its highest level in five weeks.
- The Trump administration continued its focus on trade by imposing tariffs on Brazil and threatening levies on Canada.
World stocks experienced a significant rally on Tuesday, with strong performance in semiconductor shares helping to offset concerns stemming from the escalating U.S.-Iran conflict and rising oil prices. The Japanese yen, meanwhile, depreciated to a 40-year low against the U.S. dollar.
The author's column highlights the re-emergence of a 'stagflation' premium in asset prices, most evident in oil but also beginning to influence Treasuries and the dollar. Equities and credit markets have so far remained largely unaffected.
Key market movements included a 4% rise in South Korea's stock market, a 5% gain in China, and a 3% increase in Japan. European and UK markets were up 0.6%. In the U.S., the Dow Jones Industrial Average rose 0.7%, the S&P 500 gained 0.9%, and the Nasdaq Composite climbed 1.3%. The technology sector, particularly semiconductors, led the gains, with the SOX chip index up 5%. Shares of Sandisk surged 14%, while Micron Technology and Western Digital were up approximately 12%.
In currency markets, the dollar strengthened against the yen, pushing the pair above 163 for the first time in four decades, and the dollar index rose 0.2%. U.S. Treasury yields saw an increase of 2-5 basis points, with the 10-year gilt yield touching a two-month high of 5.05%.
Commodities saw oil prices climb 2%, with Brent crude surpassing $91 a barrel, reaching a five-week high. Gold prices also increased by 2%.
On the trade front, the Trump administration continued its focus on tariffs, imposing a 25% levy on targeted imports from Brazil and threatening 50% levies on $20 billion worth of imports from Canada. While markets have shown limited reaction, these actions serve as a reminder of ongoing trade risks.
The significant weakening of the yen is attributed partly to broad-based dollar strength and rising oil prices, but also to concerns about policy credibility, including government spending plans and the Bank of Japan's cautious approach to interest rate hikes.
Looking ahead to upcoming earnings, major U.S. tech companies Alphabet, Tesla, and IBM are scheduled to report. The semiconductor sector has seen a rebound this week, with the SOX index up 10% after a previous decline, raising questions about whether these earnings reports will sustain a 'buy the dip' market sentiment or revive a 'sell the rally' outlook.