Stocks Fall as US-Iran Truce Comes Under Strain: Markets Wrap
(Bloomberg) — Stocks fell, bond yields rose and oil rallied after President Donald Trump thrust geopolitical risks back into focus by saying the ceasefire between the US and Iran may be over.
S&P 500 futures slid as much as 1.1% before recovering some of the losses. Brent crude advanced 4.5% to around $77.50 a barrel. Trump called the ceasefire “a waste of time” after the US launched strikes against Iran in response to attacks on ships transiting the Strait of Hormuz. Gold fell, while the dollar rose.
Trump’s declaration “marks the most serious rupture yet in an agreement that has been fraying for weeks,” said Violeta Todorova, senior research analyst at Leverage Shares. “Markets had been treating the June memorandum of understanding as a durable de-escalation. That complacency now looks fragile.”
European bonds tumbled as traders added to wagers that central banks will have little choice but to raise interest rates this year. The yield on 10-year gilts jumped eight basis points to 4.93%. Treasuries extended Tuesday’s selloff, though the rise in rates was modest.
Wednesday’s escalation is prompting a flight from risk after an April ceasefire and a subsequent US-Iran memorandum of understanding gave investors confidence that both sides were keen to avoid a long conflict. Stocks have rallied since late March as a strong earnings season bolstered confidence in the economic potential of artificial intelligence.
That trade was in focus earlier Wednesday in South Korea, where the Kospi Index slumped 5.4% to enter a bear market. This year’s best-performing major benchmark has been lashed by volatility amid a rotation in technology stocks, with investors shifting out of semiconductors in search of more attractive valuations. Alibaba Group Holding Ltd. jumped 12% in Hong Kong.
“Overlapping negative news flow is pushing markets down now, and with no major earnings coming out in the next few days to change that trend, it seems there will be little respite for markets,” said Michael Field, chief equity strategist at Morningstar.
Oil and gas stocks outperformed in US premarket trading. Chipmakers and related stocks took another beating, with names such as Micron Technology Inc. and Sandisk Corp. falling more than 3%. All members of the Magnificent Seven were trading lower, led by losses in Microsoft Corp.
The release of the Federal Reserve’s June meeting minutes would be the session’s main macro event. It takes on added significance after Chair Kevin Warsh shortened the policy statement and declined to contribute to rate forecasts. Money markets are fully pricing an October Fed hike.
The minutes “might bring back some of the hawkish spirits lost since the jobs report, as they’ll reflect the hawkish dot plot released at the time,” wrote Bloomberg Economics’ Andrew Sacher. “We expect the account to emphasize concerns about above-target inflation and officials’ desire to retain some room to tighten.”
A tightening in financial conditions, volatility in the AI trade and geopolitical risks are adding to “noise” in markets, said Lilian Chovin, head of asset allocation at Coutts in London.
“We are still comfortable taking risk, but we think the environment is a little bit more challenging,” Chovin said. “In the Middle East, the situation is still very much in flux; tensions will remain, things are not completely sorted.”
What Bloomberg Strategists Say:
“It takes a much larger move in oil to overwhelm other drivers of equity performance. The escalation in US-Iran tensions represents a downside risk, but without a much larger increase in commodity prices it is unlikely to have a material impact on equity markets.”
— Skylar Montgomery Koning, macro strategist. For the full analysis, click here.
Corporate News:
DWS Group, the asset management arm of Deutsche Bank AG, is planning a rebrand to boost its visibility with institutional clients beyond its German home market. UniCredit SpA moved closer to control of Commerzbank AG after investors tendered enough shares at the end of the Italian lender’s takeover offer to raise the stake it can potentially oversee to 47.6%. Blue Origin is raising $10 billion at a $130 billion valuation excluding the new funds, the New York Times reported. Allianz SE plans to eliminate hundreds of positions at its assistance and travel insurance subsidiary Allianz Partners as the company pushes forward with implementing artificial intelligence solutions. Singaporean state-owned investor Temasek Holdings Pte is ramping up its exposure to artificial intelligence and the Americas, a shift which helped push its net portfolio value to S$518 billion ($401 billion) in the last financial year. Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.6% as of 8:26 a.m. New York time Nasdaq 100 futures fell 0.9% Futures on the Dow Jones Industrial Average fell 0.8% The Stoxx Europe 600 fell 1.3% The MSCI World Index fell 0.3% Currencies
The Bloomberg Dollar Spot Index rose 0.1% The euro was little changed at $1.1405 The British pound was little changed at $1.3351 The Japanese yen fell 0.2% to 162.49 per dollar Cryptocurrencies
Bitcoin fell 2.3% to $62,198.05 Ether fell 2.2% to $1,744.67 Bonds
The yield on 10-year Treasuries advanced one basis point to 4.57% Germany’s 10-year yield advanced seven basis points to 3.06% Britain’s 10-year yield advanced eight basis points to 4.93% Commodities
West Texas Intermediate crude rose 4.5% to $73.62 a barrel Spot gold fell 0.9% to $4,068.80 an ounce This story was produced with the assistance of Bloomberg Automation.
–With assistance from James Hirai and Sujata Rao.
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