Global financial markets turned cautious on Tuesday as President Donald Trump’s warning that the US-Iran ceasefire was “on life support” renewed fears over Strait of Hormuz disruptions, sending crude oil higher while chip stocks pulled back from recent highs and investors braced for critical US inflation data later in the day.
Brent crude futures rose 0.7% to $105 a barrel, reflecting deepening anxiety over the Middle East conflict after Trump said Tehran’s response to a US peace proposal made clear the two sides remained far apart. The prolonged constraint on the Strait of Hormuz — through which nearly 20% of global oil supply passes — continues to underpin energy prices with no near-term resolution in sight.
How are equity markets reacting?
S&P 500 futures dipped 0.2% even as Wall Street had shown resilience overnight, with the S&P 500 and Nasdaq each eking out fresh closing highs in the previous session. The near-unstoppable KOSPI index in Seoul — buoyed in recent weeks by a chip stock rally — slid 3%, pulling down broader regional sentiment. MSCI’s broadest index of Asian shares excluding Japan fell 1%, while Tokyo’s Nikkei was broadly flat. European futures fell 1%.
The chip stock rally, which has been a dominant driver of global equity gains in recent weeks on the back of AI demand optimism, showed signs of cooling as investors rotated to a more defensive posture ahead of the US inflation print.
What does Trump’s China visit mean for markets?
Trump is scheduled to visit China on Wednesday, but market expectations are low for meaningful progress on either the Iran situation or the broader trade front. Daniel Casali, chief investment strategist at Evelyn Partners, said investors should not expect sweeping agreements, adding that a win would mean no new tariffs or export controls, and perhaps small symbolic deals such as agricultural purchases, aircraft orders, or signals on rare earths. “These may seem minor, but stability at the margin matters,” he said. Markets are primarily focused on the status quo holding rather than any breakthrough.
US inflation data in focus
US consumer price index data is due later in the day, with headline CPI expected to climb to 3.7% year-on-year — a hot print that reflects the pass-through of elevated energy costs from the Middle East conflict into the broader US economy. Any suggestion that the Federal Reserve may need to hike interest rates this year — rather than cut, as markets had anticipated before the war began — could significantly rattle equity and bond markets globally.
Bond markets and currency moves
Global bond yields rose overnight. Japan’s 10-year government bond yield climbed to a 29-year high of 2.54% ahead of an auction, with a summary of opinions from the Bank of Japan’s April meeting reinforcing a growing hawkish shift on the board and keeping the door open for a June rate hike. UK gilts sold off after a speech by Prime Minister Keir Starmer did little to dispel investor doubts about his political survival following Labour’s heavy defeat in last week’s local elections. US 10-year Treasury yields held steady at 4.42%.
In currency markets, the dollar rose to 157.53 yen as US Treasury Secretary Scott Bessent held meetings with top Japanese officials in Tokyo. Japanese Finance Minister Satsuki Katayama said both sides were “coordinating extremely well on recent market moves, including exchange rates,” without explicitly endorsing currency intervention. The euro slipped 0.2% to $1.1762 and the Australian dollar fell 0.25% to $0.7232 ahead of Australia’s budget, which is expected to show a narrower deficit than previously flagged.
India angle
The combination of Brent crude at $105, a hot US inflation print potentially delaying Fed rate cuts, and a stronger dollar creates a challenging backdrop for Indian markets. Elevated crude prices add to the under-recovery burden on Indian oil marketing companies — already bleeding ₹30,000 crore per month — while a stronger dollar and delayed Fed easing put pressure on the rupee and foreign portfolio investment flows into Indian equities and bonds. The US CPI data released later today will be closely watched by RBI and market participants for its implications on the trajectory of Indian monetary policy and currency stability.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors are advised to consult a registered financial advisor before making any investment decisions. Business Upturn does not hold any position in the securities mentioned.