Oil prices experienced an uptick on Wednesday, alongside a sell-off in bonds, driven by escalating violence in the Middle East and new U.S. sanctions on Iranian oil, which cast doubt on the existing ceasefire. Meanwhile, stock markets paused as the previously soaring AI sector showed signs of losing steam.
Brent crude saw a 2% increase, reaching $75.60 per barrel. Although this figure remains significantly lower than the wartime highs exceeding $120, it still raised concerns in the bond market regarding inflation risks, especially given that prolonged conflict has depleting global oil reserves.
“The market is certainly unsettled by these attacks, though it hasn’t entered a state of outright panic,” commented Jason Wong, a senior strategist at BNZ in Wellington.
The recent U.S. airstrikes represent the latest hurdle to the peace framework established last month, targeting Iranian air defenses, coastal monitoring systems, and drone launch facilities, according to a U.S. official. In response, Iran’s military leadership has vowed to deliver a “crushing response.”
Additionally, the U.S. has retracted a concession permitting Iran to sell oil internationally, which Iran’s foreign ministry claims violates the framework agreement aimed at ending the conflict.
Yields on ten-year U.S. Treasury bonds, which increase as prices drop, rose by approximately three basis points to reach a one-month peak of 4.565%.
“Just when we thought the geopolitical risk was behind us, we were reminded that this peace deal remains a work in progress,” remarked David Chao, Asia-Pacific global market strategist at Invesco in Singapore.
“Given Brent’s current level, it still does not seem to reflect ongoing tensions in the Middle East adequately,” he added.
This week’s data highlighted that U.S. crude oil inventories in the Strategic Petroleum Reserve have fallen to their lowest levels since 1983, making markets more susceptible to potential supply disruptions.
In the foreign exchange markets, the dollar, having retreated from recent peaks, remained stable, pushing the euro just above $1.14 and strengthening against the yen, surpassing 162, raising the possibility of intervention from Japanese authorities.
The New Zealand dollar saw a slight increase of about 0.5% to $0.57 following an anticipated interest rate hike by the Reserve Bank of New Zealand.
Asian stock markets exhibited a cautious attempt to stabilize on Wednesday, with gains in Hong Kong supporting MSCI’s broadest measure of Asian stocks outside Japan, which remained stable, while South Korea’s technology-heavy market declined by 1.5%.
In the U.S., the Nasdaq fell below its 50-day moving average, reacting negatively to impressive earnings from Samsung Electronics, which raised alarms for the AI sector’s recent rally.
Despite Samsung reporting a remarkable 19-fold profit increase, its shares dropped by 7% on Wednesday, causing ripple effects across global markets and pulling down the Philadelphia semiconductor index by 4.6%. Samsung stock was volatile, ending down by 3%.
“The trend of short-term profit-taking on long-standing winners, especially within the AI sector, seems to be a global phenomenon,” stated Sara Perring, Head of APAC Cash Equity Sales at J.P. Morgan.
“According to J.P. Morgan Research, we should anticipate continued volatility and ongoing foreign selling in Korean equities in the near term. We recommend looking to invest during dips in AI and related sectors, as well as in sectors benefiting from wealth effects and financials, given our positive long-term outlook,” she concluded.
