Stocks and sovereign debt sold off across the globe as markets sharply adjusted to the conflict in the Middle East. The U.S. and Israel continued strikes against Iran as the conflict entered its fourth day, while Iran escalated its attacks across the region.
Oil prices climbed further and gas prices continued to surge as Iran targeted energy infrastructure and threatened ships sailing through the Strait of Hormuz. The moves raised fears of an extended inflation shock, in turn threatening to hold interest rates higher for longer. Yields on Asian and European government bonds jumped, while U.S. Treasury yields also edged higher.
U.S. futures were in the red in early European trade. European stocks tumbled at the open as all sectors sold off at the market open. The moves followed a rocky day in Asian equity trading.
On the macroeconomic front, investors watch for eurozone inflation data for February.
–U.S. Treasury yields edged higher, extending Monday’s moves as markets continued to focus on the potential inflationary impact of surging oil prices due to the Middle East conflict. The two-year Treasury yield was up 0.5 basis points at 3.490%, and the 10-year yield was up 1.3 bps at 4.064%, according to Tradeweb. U.S. Treasurys aren’t behaving as expected during a geopolitical turmoil, BNY’s John Velis said. “Typically, after a geopolitical shock of this nature, market volatility rises and risk assets like equities and corporate bonds weaken.”
Eurozone government bond yields jumped in early trade at a faster pace than their U.S. peers, with the 10-year German Bund yield rising 6.4 basis points to 2.771%. “The price action at the start of this week once more underscores that Bunds and U.S. Treasuries no longer function as safe havens,” Commerzbank’s Christoph Rieger said in a note.
In Asia, government bonds sold off Tuesday. Yields on 10-year Japanese government bonds rose 6 basis points to 2.120%, while yields on 10-year Australian sovereign securities climbed 9 basis points to 4.7260%.
–Oil prices extended gains, with Brent crude surpassing $80 a barrel. In early European trading, the international oil benchmark rose 3.3% to $80.34 a barrel, while WTI was up 2.5% to $71.54 a barrel. “The longer the conflict persists, the greater the impact it will have on the oil market,” analysts at ANZ said.
Traders are also concerned about attacks on energy infrastructure, which could lead to prolonged outages. This is reflected in the structure of Intercontinental Exchange Brent futures, where widening backwardation–when near-term prices are higher than future prices–signals acute tightness in prices for oil with very near-term delivery dates.
–European natural gas prices continued to surge after a production halt at the world’s largest liquefied-natural-gas export facility in Qatar rattled markets, stoking concerns over global supply. The Dutch TTF front-month contract jumped 29.5% to 57.50 euros a megawatt-hour, the highest level in more than a year.
“This is the biggest threat to world gas markets since Russia invaded Ukraine in 2022,” analysts at ANZ said. Prices began climbing on Monday after state-owned QatarEnergy suspended production at the Ras Laffan complex following an Iranian drone strike.
–Gold prices rose as investors sought safety amid escalating tensions in the Middle East, but remained below $5,400 a troy ounce due to a strong dollar. In early trading, futures in New York were up 0.3% to $5,329.40. “Without a clear consensus on how long the conflict and the associated premium will last, markets will shelter in safe-haven assets like gold,” analysts at BMI said.
–Futures tied to the S&P 500 and the Dow Jones Industrial Average both declined 1.2% in early European trade. The tech-heavy Nasdaq was down 1.3%. Nvidia fell 2.7% while Micron Technology was down 5.7% premarket as AI-related stocks fell across the globe.
–In Asia, South Korea’s Kospi posted its worst day since August 2024, ending 7.2%. The Korean market’s tumble came even as defense stocks in the country surged. Guided-missile maker LIG Nex1 and multiple rocket-launcher developer Hanwha Aerospace jumped as much as 30% and 20%, respectively, in morning trade.
Japan’s Nikkei Stock Average dropped 3.1% and the Hang Seng Index was off by 1.3%.
Shanghai-listed shares in PetroChina, Cnooc and China Petroleum & Chemical Corp. all rose by 10%–the daily limit before trading would be suspended–for a second consecutive day, bringing week-to-date gains to 21% each.
Hong Kong’s Hang Seng dropped 1.1%. China’s benchmark Shanghai Composite declined 1.4%.
–European indexes opened down as banks extended Monday’s losses, while utilities stocks and miners joined the selloff. All sectors were in the red. The U.K.’s FTSE 100 fell 1.4%, with copper miner Antofagasta slipping 3.8%. In Paris, utilities stocks led the CAC 40 down 1.8%. Luxuries bellwether LVMH extended losses, falling 2.4%. The German DAX slid 2.1% as major chemicals and industrial stocks fell: Bayer was down 3.1% while Siemens fell 2.85%.
Italy’s FTSE MIB was down 2.3% and Spain’s IBEX 35 slid 2%. Both indexes were dragged by banks and utilities stocks. Insurer Generali fell 3.6% in Milan, part of a broader slide in insurance stocks. In Switzerland, Zurich Insurance fell 5.1%. Tech stocks also tumbled. Amsterdam-listed chip-making equipment maker ASML–Europe’s most valuable company–fell 2.9%.
–The dollar rose to a near six-week high against a basket of currencies after President Trump said U.S. attacks on Iran could last four or five weeks but might go on for longer. The news encourages investors to buy safe-haven assets including the dollar. The dollar also benefited from higher oil prices resulting from the conflict due to America’s energy independence and the potential for inflation accelerating and reducing the prospect of further interest-rate cuts by the Federal Reserve. The DXY dollar index rose to a high of 98.815.
–Bitcoin fell as the Middle East conflict dented risk appetite. Bitcoin’s reaction to the conflict has been volatile. The cryptocurrency initially fell at the weekend but recovered Monday. Monday’s gains likely reflected positioning adjustments and differing views on risks of the conflict as geopolitics are difficult to trade, Jefferies economist Mohit Kumar said in a note. “We do not agree with the sanguine market reaction yesterday and see downside in risky assets over the coming days.” Bitcoin fell 1.8% to $68,176 after reaching a two-week high of $70,028 Monday, LSEG data showed.
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