Stocks and Bonds Sink as Oil Surge Rattles Traders: Markets Wrap
(Bloomberg) — Stocks fell and bonds deepened losses as the war in Iran entered its fourth day with no sign of de-escalation, heightening fears of a lengthy disruption to energy markets and a surge in inflation.
S&P 500 futures tumbled 1.7%. European and Asian equity benchmarks headed for their worst two-day drop since April. Brent crude rose more than 8% to top $85 a barrel for the first time since July 2024. European gas added 41% to Monday’s gains as the world’s largest LNG export plant in Qatar remained shut.
Concern that energy prices could remain elevated pushed global yields higher for a second day. European debt was among the hardest hit, given the region’s greater exposure to higher oil and gas costs, with traders sharply dialing down expectations for interest-rate cuts.
The yield on two-year UK gilts surged 17 basis points. A surprise acceleration in euro-area inflation added to bets that the European Central Bank could raise rates in 2026. Ten-year Treasury yields climbed six basis points to 4.10% as expectations dimmed for a second Federal Reserve cut in 2026. The dollar remained the haven of choice, rising 0.7%.
As the US-Israeli war on Iran reverberated across the Middle East, President Donald Trump insisted there was no fixed timeline, while Secretary of State Marco Rubio said “the hardest hits are yet to come.” The US embassy in Riyadh was attacked by drones, while Israel sent soldiers into southern Lebanon, where the Iran-aligned Hezbollah militia is based.
“There was definitely a degree of complacency in US equity market valuations at close yesterday, and a perception that military conflict in Iran was a self-contained geopolitical risk,” said Emma Moriarty, portfolio manager at CG Asset Management. “Comments from the White House yesterday suggest a will to make the conflict more durable and to do whatever it takes.”
A key focus for traders is what happens in the Strait of Hormuz, a narrow waterway off the coast of Iran that carries about a fifth of global oil supply.
“The critical difference is that it has become clear that crucial energy infrastructure has been shut down, which means that oil and gas supply will be impaired for four to six weeks,” said Joachim Klement, head of strategy at Panmure Liberum. “We continue to think that this war will last weeks, but not months.”
One of the day’s most pronounced moves came in South Korea, which slumped 7.2% as markets reopened after a holiday. Samsung Electronics Co. and SK Hynix Inc. dropped more than 10%.
What Bloomberg strategists say…
The investor playbook for Iran has been ripped up, and markets haven’t repriced to the new paradigm yet. The next few weeks are going to be volatile and negative for many so-called risk assets. The Pavlovian response has been to both buy the dip and dismiss the threat from geopolitical risks. But that’s “an automatic, conditioned response,” rather than one borne out of thoughtful consideration or analysis.
— Mark Cudmore, MLIV Executive Editor. For full analysis, click here.
Nvidia Corp. fell 3% in US premarket trading as officials consider capping the number of artificial-intelligence accelerators the company can export to any single Chinese customer. In Europe, banks and insurers are now in negative territory for the year as rising bond yields weigh on valuations. UniCredit SpA and Deutsche Bank AG slumped more than 5%.
“We do not agree with the sanguine market reaction yesterday and see downside in risky assets over the coming days,” wrote Mohit Kumar, chief strategist for Europe at Jefferies. “We are happy to be overweight cash right now, waiting for more clarity and then use market moves to buy the dip.”
Corporate Highlights:
Target Corp. forecast better-than-expected profit for the full year, indicating the big-box retailer’s turnaround plans are generating results. Blackstone Inc. is allowing investors to redeem a record 7.9% of shares from its flagship private credit fund, the latest sign of unease in an industry that’s faced a wave of withdrawals. Fitch Ratings downgraded Paramount Skydance Corp.’s corporate and long-term borrower ratings to junk following the media company’s agreement to buy larger rival Warner Bros. Discovery Inc. The roughly $17.5 billion of debt tied to Elon Musk’s social network X and artificial intelligence startup xAI is set to be paid back in full, according to people with knowledge of the matter. Some of the main moves in markets:
Stocks
S&P 500 futures fell 1.7% as of 6:36 a.m. New York time Nasdaq 100 futures fell 2.1% Futures on the Dow Jones Industrial Average fell 1.8% The Stoxx Europe 600 fell 3.1% The MSCI World Index fell 0.9% Currencies
The Bloomberg Dollar Spot Index rose 0.8% The euro fell 0.9% to $1.1586 The British pound fell 1% to $1.3278 The Japanese yen fell 0.3% to 157.94 per dollar Cryptocurrencies
Bitcoin fell 3.5% to $66,966.87 Ether fell 4% to $1,961.97 Bonds
The yield on 10-year Treasuries advanced six basis points to 4.10% Germany’s 10-year yield advanced eight basis points to 2.80% Britain’s 10-year yield advanced 14 basis points to 4.52% Commodities
West Texas Intermediate crude rose 7.9% to $76.87 a barrel Spot gold fell 3.8% to $5,117.44 an ounce This story was produced with the assistance of Bloomberg Automation.
–With assistance from Neil Campling, Subrat Patnaik and James Hirai.
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