Global Markets Decline Amid Escalating Middle East Conflict and Rising Oil Prices

Global markets experienced significant declines as escalating Middle East tensions led to a surge in oil prices, with Brent crude surpassing $100 per barrel.

In a prime-time address, President Donald Trump announced plans for intensified military actions against Iran over the next two to three weeks, aiming to dismantle Iran's power infrastructure.

The S&P 500 futures dropped 1.2%, while European and Asian markets also retreated. Brent crude oil prices jumped 8% to over $109 a barrel, and European diesel futures reached $200 a barrel.

Bond yields rose as traders anticipated prolonged higher oil prices, leading to expectations of tighter monetary policies. The U.S. dollar strengthened, and gold prices declined after a four-day gain streak.

Laurent Lamagnere, deputy chief executive officer at Alphavalue in Paris, expressed concerns about the market's volatility and the broader economic implications, including potential impacts on tourism due to airlines adjusting routes.

Despite earlier optimism for a swift resolution, President Trump's speech did not provide a clear timeline for ending the conflict, contributing to market uncertainty.

Russ Mould, investment director at AJ Bell, noted that oil prices remaining above $100 per barrel indicate the significant impact of the conflict on global energy supplies.

Shares in oil and gas companies, such as Venture Global Inc. and Exxon Mobil Corp., rebounded in U.S. premarket trading, while sectors like travel, mining, and semiconductors faced declines. Nasdaq 100 futures fell 1.5%.

Treasury yields increased across the curve, with the two-year rate up five basis points to 3.85%, as traders reduced the likelihood of a 2026 Federal Reserve rate cut. Money markets are now fully pricing in two quarter-point hikes by the Bank of England and nearly three by the European Central Bank for the year.

ECB Governing Council member Fabio Panetta highlighted that the conflict's damage will continue to negatively impact the global economy even if hostilities end soon.

Traders are likely to adjust their stock holdings ahead of the long weekend, with many markets closed for up to four days. Since the conflict began, the S&P 500 has shown cumulative gains over the first three days of the week but has declined 9% on Thursdays and Fridays.

Mabrouk Chetouane, global head of market strategies at Natixis IM Solutions, advised maintaining current allocations amid the uncertainty, emphasizing the binary nature of potential outcomes between escalation and de-escalation.

In corporate news, Estée Lauder Cos. and Spain's Puig Brands SA are advancing in merger negotiations. Air France-KLM has submitted a bid for a stake in Portuguese flag carrier TAP SA. Alibaba Group Holding Ltd. released its third proprietary AI model in as many days, reinforcing its focus on artificial intelligence services. Stellantis NV is discussing options for building electric vehicles in Canada with its Chinese partner, Zhejiang Leapmotor Technology Co.

Key market movements include:

• Stocks: S&P 500 futures fell 1.2% as of 6:59 a.m. New York time; Nasdaq 100 futures fell 1.6%; Dow Jones Industrial Average futures fell 1%; Stoxx Europe 600 fell 1.2%; MSCI World Index fell 0.6%.

• Currencies: Bloomberg Dollar Spot Index rose 0.5%; euro fell 0.7% to $1.1512; British pound fell 0.9% to $1.3186; Japanese yen fell 0.6% to 159.70 per dollar.

• Cryptocurrencies: Bitcoin fell 2.5% to $66,437.34; Ether fell 4.9% to $2,037.67.

• Bonds: Yield on 10-year Treasuries advanced five basis points to 4.37%; Germany's 10-year yield advanced five basis points to 3.04%; Britain's 10-year yield advanced nine basis points to 4.92%.

• Commodities: West Texas Intermediate crude rose 8.3% to $108.43 a barrel; spot gold fell 2.8% to $4,623.63 an ounce.