Escalating military tensions between the United States and Iran became the dominant force shaping global financial markets. President Trump declared at the NATO summit in Türkiye that the ceasefire had ended, increasing concerns about a broader conflict in the Middle East. Investors reacted by pushing oil prices sharply higher while selling equities across major regions. Government bond yields climbed as risk sentiment deteriorated. The US dollar delivered a mixed performance against major currencies but generally advanced versus emerging-market peers. Commodity markets also reflected the shift toward geopolitical risk, with crude oil surging while precious metals remained under pressure.
Asia Pacific Markets
The Asia-Pacific region faced heavy selling pressure in equities, with South Korea’s Kospi dropping more than 5%, Japan’s Nikkei 225 losing over 2%, and Indian benchmarks declining around 2%. The Reserve Bank of New Zealand raised its official cash rate by 25 basis points to 2.50%, its first increase since May 2023, helping lift the New Zealand dollar to the top of the G10 currency rankings. The Australian dollar retreated from a recent two-week high, while the Japanese yen weakened as the US dollar moved closer to the 40-year peak reached earlier this month. In China, the offshore yuan softened further and the PBOC set a slightly higher dollar reference rate. India’s rupee reversed recent gains and fell to its weakest regional position this month.
European Markets
European assets also reflected the worsening geopolitical backdrop. The Stoxx 600 extended recent losses and was on track for its largest decline since mid-March. Bond markets sold off aggressively, with benchmark 10-year yields across Europe rising substantially over the last two sessions. In foreign exchange trading, the euro slipped below the $1.14 area before recovering modestly, though it remained vulnerable within its recent range. Sterling fell to a four-day low before stabilizing near $1.3350. The Norwegian krone outperformed most major currencies as higher oil prices supported demand. Market participants continued to focus on the implications of rising energy costs and renewed Middle East instability.
American Markets
US markets were influenced by the same combination of geopolitical risk and higher energy prices. Futures linked to major US stock indices pointed to losses of between 1% and 1.5%, while the benchmark 10-year Treasury yield approached 4.58%, its highest level in nearly a month. Crude oil extended a powerful rally after attacks on vessels in the Strait of Hormuz and the US decision to revoke a waiver related to Iranian oil products. August WTI climbed from last week’s low near $67 to above $75. Investors also awaited minutes from Chair Warsh’s first FOMC meeting and May consumer credit data. Meanwhile, the Canadian dollar strengthened even as risk aversion intensified, with the US dollar retreating toward last week’s lows against the currency.