Global financial markets came under pressure at the start of the week as tensions in the Middle East escalated, pushing oil prices sharply higher and raising concerns that inflation could return. At the same time, profit-taking pressure in AI-related stocks also made investors more cautious.

Oil Prices Surge on Hormuz Risks

Tensions between the U.S. and Iran intensified after renewed missile and drone attacks. Iran said it had once again closed the Strait of Hormuz, one of the world’s most important energy shipping routes.

Oil prices reacted strongly to the news. Brent crude rose 3.8% to $78.86 per barrel, while WTI crude gained 4.11% to $74.36 per barrel.

The rebound in oil prices has revived inflation concerns and increased market expectations that the Fed and other central banks may need to keep interest rates higher, or even tighten policy further.

Global Stocks Weaken

The MSCI World Index fell 0.38%, while Europe’s STOXX 600 declined 0.12%. European technology stocks were hit harder, falling 1.1%.

In the U.S., Nasdaq futures dropped 1.20%, while S&P 500 futures fell 0.40%. In Asia, Japan’s Nikkei declined 1.9%.

Notably, South Korea’s KOSPI plunged 7.6%, after already losing nearly 8% the previous week. The pressure mainly came from leveraged positions in semiconductor stocks, as markets began questioning the sustainability of the AI investment boom. A lovely reminder that “unstoppable momentum” often stops very loudly.

Bond Yields and the Dollar Rise

The surge in oil prices pushed U.S. bond yields higher. The 2-year Treasury yield rose to 4.2393%, its highest level since February 2025.

Futures markets now imply around 39 basis points of Fed tightening by the end of the year. Meanwhile, the U.S. Dollar Index edged higher to 101.13.

The dollar rose 0.24% against the yen to 162.12, while the euro held near $1.1394. The British pound slipped 0.14% to $1.3379.

CPI Data and Earnings Season in Focus

Investors are now waiting for the U.S. June CPI report, which is due on Tuesday. The data may show some cooling in headline inflation due to earlier declines in gasoline prices, but the latest rebound in oil could bring inflation pressure back into focus.

Earnings season will also be important for equity markets. Major U.S. banks begin reporting results on Tuesday, while companies such as Netflix and General Electric are also on the watchlist.

For the technology sector, investors will closely monitor the outlook for AI capital spending. TSMC is set to report earnings on Thursday, with markets expecting another record profit.

Gold Falls as Yields Rise

In commodities, higher bond yields weighed on gold, which does not offer interest income. Gold fell 1.5% to around $4,060 per ounce.

This shows that although geopolitical risks often support safe-haven demand, higher yields and rising rate-hike expectations are still creating significant pressure on precious metals.

Conclusion

Escalating tensions in the Gulf are making global financial markets more sensitive. Rising oil prices have revived inflation concerns, pushing bond yields and the U.S. dollar higher, while equities are facing pressure from both geopolitical risks and concerns over AI-related valuations.

Source: Reuters