- Intensifying US-Iran war sends Brent above $100, US yields to 18-month high
- Stocks take a dive as AI jitters exacerbate the selloff
- But markets calmer today as oil pares gains, upbeat PMIs help sentiment
- Yen continues to tumble, nearly hits 164 per dollar
No End in Sight to US-Iran Hostilities
The United States’ bombing campaign on Iran reached a 13th consecutive night on Thursday, signalling President Trump remains in ‘revenge mode’, with a pause in the fighting not looking likely anytime soon. The strikes only seem to be intensifying, especially after Iran-backed Houthi rebels in Yemen attacked two Saudi ships in the Red Sea on Wednesday.
Trump vowed to hold Iran responsible for any further attacks by the Houthis in a post on his Truth Social platform and also warned Tehran that the US will use frozen Iranian assets to pay for any damaged ships and cargo.
According to the Wall Street Journal, Trump appears to be losing patience with Iran and this week’s surge in US troops to the region suggests the President may carry out his threat of a ‘massive attack’ on the country.
Brent Crude Oil Back Above $100
More importantly for the global economy, this escalation risks closing off a second vital transit route for oil shipments. Although this is hardly a new threat and the Red Sea was bound to be targeted the longer the war dragged on, markets have been extremely complacent about the risks.
It can even be said that the energy crisis is much graver now, as many countries have depleted vast chunks of their oil and gas inventories, and these latest strikes have acted as a wake-up call for investors.
are up by almost 10% this week, taking the monthly gains to 30%, while the international benchmark has jumped by around 12% during the week, rising above $100 a barrel for the first time since late May.
The worry is that given the severity of the situation, the jump in oil prices probably doesn’t represent the full scale of disruption to energy markets. Investors are likely holding onto some optimism that Trump will seek a way out and agree to a ceasefire. However, according to some reports, the US did make a fresh ceasefire proposal this week but it was rejected by the Iranians.
Nevertheless, the oil rally is taking a breather on Friday, allowing for some risk appetite to return.
Big Tech Lead the Losses, Chips Mixed
European shares and US futures are rebounding today, though Asian stocks remain in the doldrums.
Equities have been having a hard time lately, battling expectations of higher interest rates as well as renewed jitters about AI spending. But, as has been the case in recent weeks, performance across the broader tech sector has been very mixed.
Korean chip stocks took the brunt of this week’s selloff, but US indices are headed for weekly losses of less than 1%.
Most US chip stocks have rebounded somewhat from last week’s lows and it’s the Big Tech that came under the most pressure following Alphabet’s (NASDAQ:) and Tesla’s (NASDAQ:) Q2 earnings that revealed a huge cash burn.
Whilst chipmakers may continue to benefit from all the spending on AI infrastructure, investors are not happy about how the hyperscalers are funding it, even as they begin to report faster revenue growth.
Yen’s Woes Worsen, Almost Hits 164 Per Dollar
In FX markets, the rise in Treasury yields has lifted the to three-week highs against a basket of currencies, with the surpassing 4.70% for the first time since January 2025.
Although Japanese yields have also soared, investors haven’t adjusted much their expectation of Bank of Japan rate hikes, whereas the is seen hiking at least twice by next Spring.
The diverging expectations along with Japan’s vulnerability to the energy crisis have battered the , with the dollar coming just shy of the 164-yen level yesterday.
The move invited fresh verbal intervention by Japan’s finance minister, Satsuki Katayama, who warned of “decisive action with determination”. Crucially, the US Treasury has also stepped in, saying that “excess volatility in the yen is undesirable”, while simultaneously urging the Bank of Japan to raise rates.
Euro and Pound Lifted by Positive Data
Elsewhere, the and traded marginally higher on the back of better-than-expected flash PMI numbers for July. It seems that the Middle East flare-up had only a limited impact on European business activity so far in July, while the warm weather and excitement about the World Cup boosted June retail sales in the UK.
There was some relief on Thursday that the European Central Bank refrained from pre-committing to a September rate hike even as policymakers remained worried about inflation.
New Tariff Decision Doesn’t Rattle Markets
Meanwhile, investors mostly shrugged off the White House’s latest tariff decision. Following the Supreme Court’s ruling on the ‘Liberation Day’ tariffs, the Trump administration has turned to the Section 301 Trade Act to impose new levies of 10% and 12.5% on 60 countries, using a law on forced labour as its reasoning.
The tariffs replace the temporary 10% duties, which expire today, announced immediately after the illegal ruling. Although they don’t change the status quo much, the Supreme Court is unlikely to strike them down and the White House can raise them to as much as 100%.
also didn’t react much to the tariff headlines and is edging slightly up today, recouping some of yesterday’s sharp fall.
