(July 9) : A flare-up in geopolitical risks sent stocks and bonds lower as oil jumped after President Donald Trump said a ceasefire with Iran may be over, raising concerns about a potential return to all-out war.
Almost 400 shares in the S&P 500 fell, but the index pared losses as Trump noted he doesn’t think the conflict will start again. Chipmakers climbed. The renewed hostilities in the Persian Gulf threatened a fresh wave of disruption for energy trading, with Brent crude briefly topping US$80. That has reignited inflation worries, prompting money markets to boost their bets the Federal Reserve will lift interest rates by October. Bitcoin sank.
The US military said it’s striking Iran for the second straight day, an escalation of violence that threatens to strain an already fragile ceasefire. The attacks came just hours after Trump said the US would probably target the country again and could resume a blockade on Iranian ports.
The moves posed the greatest threat yet to talks toward a broader agreement to end the war that has jolted global markets. The US has blamed Iran for attacks on some ships in recent days. Tehran has said repeatedly it won’t allow vessels to transit the key Strait of Hormuz without its permission.
“Markets weren’t initially taking the re-escalation in US-Iran tensions too seriously earlier this week,” said Fawad Razaqzada at Forex.com. “But today, that seems to have changed.”
While renewed geopolitical risks may fuel some near-term risk-off sentiment, neither the US nor Iran appears inclined toward a prolonged conflict, according to Angelo Kourkafas at Edward Jones. He also noted that investors have already seen how reacting to fast-moving headlines can lead to suboptimal portfolio outcomes.
See also: Chip stocks sink after blistering run as oil jumps
“It would likely take a much larger and sustained rise in oil prices to materially alter the outlook for the economy and corporate earnings,” he added.
Veteran strategist Ed Yardeni said the rupture in the ceasefire between the US and Iran risks sparking a fresh acceleration in price growth, which in turn could compel the Fed to raise interest rates.
A few Fed officials in their most-recent policy meeting said there was a case for raising rates, though they ultimately supported the decision to leave rates on hold. More generally, minutes of their June gathering reflected growing concern over inflation just as worries over the labor market slightly receded.
See also: Tech giants drive US stock gains in AI trade revival
“One thing is certain: future policy is heavily contingent on the political situation in the Middle East,” said Jeffrey Roach at LPL Financial. “If we can tease out any forward guidance from the minutes, it would be the committee is working through a wide range of scenarios and will not commit to a specific scenario until the incoming data provides necessary clarity.”
uploaded by Isabelle Francis
