Stocks moved back into negative territory after yo-yoing between gains and losses as oil hit one-month highs on Tuesday after President Donald Trump said the U.S. was reinstating its blockade of Iranian shipping and would collect a 20 per cent fee on the Strait of Hormuz cargo traffic.
Brent crude futures climbed over US$3.00 to US$86.36 a barrel, its highest level since mid-June.
European shares opened lower as escalating U.S.-Iran tensions spooked investors, scrutinizing quarterly earnings from companies such as oil major BP and telecom equipment maker Ericsson to gauge the conflict’s impact on corporate health.
The pan-European STOXX 600 index slipped 0.7 per cent, dragged down by travel and leisure which was last down 2.4 per cent.
Following a volatile trading session in Asia, MSCI’s broadest index of world shares edged into the negative as Europe opened lower.
Markets were also rattled by hawkish comments on Monday from Federal Reserve Governor Christopher Waller, who said the U.S. central bank may need to raise interest rates “in the near term” if data shows inflation continuing well above the 2 per cent target.
“Markets enter Tuesday at an important inflection point as investors balance three competing forces: renewed geopolitical tensions in the Middle East, the start of the second-quarter earnings season, and June U.S. inflation data,” said Bruno Schneller, managing partner at Zurich-based Erlen Capital Management.
“These events are likely to determine whether the recent rally broadens further or becomes more selective,” he added.
U.S. CPI data is due for release later on Tuesday, followed by comments from Fed Chair Kevin Warsh, who will deliver the central bank’s semi-annual monetary policy report to Congress.
That data will help shape expectations for the Fed’s next meeting on July 28 to 29. Markets currently see around a 40 per cent chance of a 25 basis point rate hike.
The rate-sensitive U.S. 2-year Treasury yield was last at 4.29 per cent, its highest since February, and up 2 basis points on the day.
The yield on the U.S. 10-year Treasury was up 2 basis points at 4.63 per cent.
Chinese shares surged in earlier trading after export and import data for June released on Tuesday surpassed economists’ expectations. They closed 2.15 per cent higher.
South Korean shares rose 0.7 per cent. Stocks in Taiwan fell 1.42 per cent on the day.
“China’s exports and imports surged to the highest levels since the pandemic-skewed 2021, as the tech boom supports growth on both fronts,” ING analysts wrote in a research note.
Overnight, stocks on Wall Street sold off. The S&P 500 closed 0.8 per cent lower and the Nasdaq Composite fell 1.6 per cent. S&P 500 futures ticked 0.1 per cent lower in early European trading while Nasdaq futures remained a resilient 0.3 per cent higher.
The U.S. dollar index, which measures the greenback’s strength against a basket of six currencies, nudged 0.1 per cent lower to 101.16, trading around its highest levels of the month. Gold was up 0.5 per cent at US$4,020.34.
In Tokyo, the Nikkei 225 closed around 0.7 per cent higher after Finance Minister Satsuki Katayama said Japan may consider adjusting the strategy of the giant Government Pension Investment Fund if the investment environment changed sharply, without giving further detail.
Bitcoin climbed 0.6 per cent to US$62,504.79.
Reuters