US Strikes Iran, Escalating Tensions; Markets Tumble
Global markets opened with significant declines on Monday, driven by renewed tensions between the United States and Iran. Overnight, U.S. forces struck two Iranian missile launchers on Qeshm Island in the Strait of Hormuz after identifying Iranian Revolutionary Guard Corps forces preparing to launch naval mines. Iran retaliated by firing missiles at U.S. ships and bases in Jordan. U.S. President Trump also released an AI-generated video depicting the bombing of Iran's main oil export terminal, Hargh Island.
In response to the escalating conflict, oil prices surged approximately 2%, with Brent crude exceeding $90 per barrel. Asian stock markets experienced sharp drops, with Japan's Nikkei down over 1%, Hong Kong's Hang Seng losing about 0.6%, Shanghai down 0.2%, and South Korea's Kospi falling 1.5%. U.S. stock futures also indicated a negative open, with Nasdaq futures down 0.5%, S&P 500 futures down 0.4%, and Dow Jones futures down 0.3%.
The geopolitical instability comes amid concerns about rising U.S. interest rates. Federal Reserve Chairman Kevin Warsh's hawkish remarks last Friday, suggesting the need for swift inflation control, have increased market expectations for a rate hike. The probability of a September rate increase has doubled to 60%, and U.S. Treasury yields have climbed, with the two-year yield jumping nearly 12 basis points to 4.35% and the ten-year yield rising 5 basis points to 4.72%. Higher yields make bonds a more attractive alternative to stocks, potentially pressuring equity markets.
Gold prices also fell over 1% to around $1,470 per ounce, as higher interest rates diminish the appeal of non-yielding assets. In Israel, the Tel Aviv Stock Exchange is expected to open lower, influenced by both the U.S.-Iran conflict and the potential impact on the Bank of Israel's upcoming interest rate decision. Dual-listed Israeli stocks are also anticipated to open with a significant negative arbitrage gap, with Tower Semiconductor, Nova, and Camtek expected to drop between 4% and 7%.
