Oil prices increased while stock markets declined globally on Wednesday following U.S. President Donald Trump’s skepticism regarding the temporary ceasefire in the conflict with Iran. The S&P 500 dropped 0.3% during the day, with the Dow Jones Industrial Average falling 1.1% after Trump’s announcement that the pause in hostilities was terminated. Despite an initial decline, the Nasdaq composite managed to rise by 0.2% after Trump clarified that recent skirmishes did not signal a return to full-scale war. Canada’s primary index, the S&P/TSX, closed the day down by approximately 1%.
In the oil market, the price of a barrel of Brent crude surged by 5.2% to $78.02 US by late afternoon, briefly surpassing $80 US. Although still below previous highs, this sudden increase is concerning as oil prices had just recently returned to pre-conflict levels. The fear persists that prolonged conflict could disrupt the flow of oil through the Strait of Hormuz, potentially leading to supply constraints and exacerbating inflationary pressures, which may prompt central banks to raise interest rates.
Higher interest rates can help curb inflation but may also hamper economic growth and impact various investment asset prices. On Wall Street, companies heavily reliant on fuel experienced notable declines, with American Airlines dropping by 4% and cruise operator Carnival by 3.9%.
Stocks in the housing sector also faced downward pressure due to concerns over rising Treasury yields potentially leading to increased mortgage rates. Builders FirstSource, PulteGroup, and D.R. Horton saw declines in their stock prices. However, some AI industry stocks managed to stabilize, alleviating some of the broader market losses.
In the bond market, Treasury yields rose in tandem with oil prices. The 10-year Treasury yield approached 4.60% before retreating to 4.57%, up from 4.55% the previous day and significantly higher than pre-conflict levels. European markets deepened their losses following Trump’s statement, with Germany’s DAX and France’s CAC 40 both declining by 2.2%.
In Asia, South Korea’s Kospi plummeted by 5.3%, while Hong Kong’s Hang Seng index showed a contrary trend by rising 3%. Chinese AI startup Zhipu’s shares in Hong Kong surged by 13.4%, as a lockup period for some investors expired, with its share price skyrocketing over 1,300% since its debut.
