Key facts
- Oil prices surged over 2% following U.S. strikes against Iran.
- The U.S. military launched fresh strikes on Iran aimed at keeping the Strait of Hormuz open.
- Iran claimed to attack U.S. military sites in Bahrain and Kuwait in retaliation.
- President Donald Trump declared the interim agreement with Iran to end the war was 'over'.
- Brent crude futures rose 0.8% to $78.65 a barrel, crossing $80 for the first time since June 22.
- Global bond markets experienced a rout, with U.S. 10-year Treasury yields rising, increasing bets on Federal Reserve rate hikes.
Oil prices surged over 2% as renewed U.S. military strikes on Iran and President Donald Trump's declaration that the interim agreement was 'over' reignited inflation fears and hammered bonds. The U.S. military launched fresh strikes for a second day, aiming to keep the Strait of Hormuz open, though Trump later indicated a full-scale war was not expected. Iran claimed to have attacked U.S. military sites in Bahrain and Kuwait in retaliation. Brent crude futures rose 0.8% to $78.65 a barrel, crossing $80 for the first time since June 22. The escalation led to a global bond rout, with U.S. 10-year Treasury yields climbing, and increased bets on Federal Reserve rate hikes. Asian shares showed mixed performance, with the MSCI's broadest index of Asia-Pacific shares outside Japan rising 0.8% and Japan's Nikkei climbing 2.3%. South Korea's KOSPI jumped 3.8%, driven by gains in Samsung and SK Hynix, while Wall Street futures were flat. Minutes from the Fed's June meeting revealed concerns about mounting inflation among policymakers.
Despite the danger, shipping is still transiting the Strait of Hormuz, albeit at a reduced volume. Stock investors in Asia initially bought the dip in chipmakers, but this enthusiasm waned as the bond market flashed warning signs over inflation and the rise in oil prices. The bond rout sent the yield on 10-year Japanese government bonds to a 30-year high of 2.885%. The risk of a renewed energy shock led markets to ramp up wagers the Federal Reserve will have to raise interest rates this year, with Fed funds futures now implying 38 basis points of tightening. Currency markets remained broadly steady, with the dollar little changed against major currencies.