Stocks dip as Middle East tensions push oil above $100
Oil prices surged past the $100 mark on Thursday after Iran seized two vessels attempting to leave the Strait of Hormuz, reviving worries that the fragile cease‑fire with the United States could unravel. The spike in Brent crude, which touched $103, pulled global equity indices lower and boosted the dollar, while bond markets showed limited reaction despite weak economic data.
European bourses mostly slipped between 0.2% and 0.8% before Wall Street opened, where the S&P 500 and Nasdaq were expected to retreat modestly from record highs set the day before. The MSCI world index, covering 47 countries, also eased from its recent peaks, and the euro hovered flat as the war’s impact on Europe’s major economies became clearer. German figures revealed the private sector contracted for the first time in almost a year, and euro‑zone business activity unexpectedly fell. In France, activity declined at the fastest pace in 14 months, while factory orders rose for the first time in nearly four years, suggesting firms are scrambling to avoid shortages and price hikes.
Chris Williamson, chief business economist at S&P Global, warned that the euro‑zone faces deepening economic challenges from the Middle‑East conflict, with supply shortages likely to suppress growth and add inflationary pressure. Brent’s climb to $103 raised inflation expectations, keeping German 10‑year yields near 3% and close to the 15‑year high of 3.13% reached in late March. Ukrainian bonds rallied after the EU approved a €90 billion loan, and Hungary confirmed the restart of Russian oil flows through the Druzhba pipeline after a months‑long shutdown. Currency markets stayed relatively calm; the dollar kept modest gains, the euro slipped to a 10‑day low of $1.1689, and the risk‑on Australian dollar fell 0.2% to $0.7147. Traders awaited further comments from President Donald Trump, who said the U.S. Navy would engage any boat laying mines in the Strait and that minesweeping operations had intensified.
Wall Street futures dropped 0.5% as investors digested the geopolitical news. The S&P 500 and Nasdaq had posted 1% and 1.6% gains respectively the previous day, aided by a strong start to the earnings season. U.S. Treasury yields rose with oil, the two‑year rate steady at 3.8% and the 10‑year climbing to 4.3% in European trading. In Asia, MSCI’s broadest index of Pacific shares outside Japan fell despite briefly hitting a record, and Japan’s Nikkei slipped 0.75% along with tech‑heavy markets in Taiwan and South Korea. Higher oil prices, up 2.5% to nearly $105 per barrel at one point in London, were the main driver, compounded by reports that clearing mines from the Strait could take up to six months. Jefferies economist Mohit Kumar noted that geopolitics continues to dominate markets, with oil 32% above pre‑war levels and U.S. and German 10‑year yields about 35 basis points higher.
