Brent crude oil climbed back above $90 per barrel on Wednesday following attacks on vessels in the Middle East, weighing on European equities and causing U.S. stock index futures to pare earlier gains. U.S. Treasury yields were mixed ahead of the release of key inflation data.
As of the latest update, Dow Jones futures were down 0.13%, S&P 500 futures fell 0.06%, and Nasdaq futures declined 0.08%.
The MSCI World Index edged lower as steeper losses in European shares offset gains in Asian markets. The Europe-wide Stoxx 600 dropped 1.1%, with industrial and defense companies leading the decline among blue-chip stocks. Germany's industrials-heavy DAX index fell 1.2% on Wednesday after a strong rebound the previous day. In Asia, Japan's Nikkei 225 rose 1.7%, while South Korea's Kospi gained 1.75%.
Market volatility persisted, with S&P 500 futures down 0.1% after having risen as much as 0.5% earlier.
Brent crude surged more than 4%, having plummeted 11% in the prior session. The U.S. dollar and gold prices showed little change. European bonds sold off sharply after a central bank official warned that the ongoing conflict could force an earlier-than-expected interest rate hike.
Jim Reid, a strategist at Deutsche Bank, noted, "Until the next major development, markets will continue to be driven by volatile news flow surrounding the situation with Iran and the outlook for oil shipments. Overall, the market narrative has shifted to a cautiously optimistic tone, even though there are few signs the conflict will end soon."
**Ships Attacked in Strait of Hormuz** Investors remained on edge as the Middle East conflict threatens to disrupt global energy trade and trigger price shocks, with world leaders scrambling to respond. The immediate concern is when safe passage through the Strait of Hormuz—a critical chokepoint for global oil supplies, effectively controlled by Iran—can be restored.
As the conflict entered its second week with no signs of de-escalation, the British navy reported three vessels were attacked on Wednesday in the Strait of Hormuz and the Persian Gulf. Meanwhile, International Energy Agency (IEA) member countries are expected to decide later Wednesday whether to implement the largest-ever coordinated release of emergency oil reserves.
The UK Maritime Trade Operations (UKMTO) said three ships near the Iranian coast were struck by projectiles. This marks the latest in a series of recent incidents in and around the Strait of Hormuz. One vessel reported being hit by a projectile about 11 nautical miles north of Oman in the strait, resulting in a fire onboard and forcing the crew to evacuate.
Two additional incidents were reported Wednesday morning: one ship was attacked by a projectile approximately 50 nautical miles northwest of Dubai, and another was damaged near the coast of the United Arab Emirates.
Between February 28, when the war began, and March 11, UKMTO received 17 reports of incidents affecting shipping in the Persian Gulf, Strait of Hormuz, and Gulf of Oman—including 13 attacks and four reports of suspicious activity.
Since U.S. and Israeli airstrikes on Iran began on February 28, shipping traffic through the strategically vital Strait of Hormuz has nearly stalled. Iran has retaliated by targeting vessels attempting to pass through the strait, with multiple incidents reported in recent days. The narrow waterway connects the Persian Gulf with the Gulf of Oman and typically handles about 20% of the world’s oil and natural gas trade.
In a related move, French President Emmanuel Macron’s office said he will convene a G7 leaders' call later Wednesday to discuss the energy crisis triggered by the Middle East conflict.
**No Easing of Middle East Tensions** Roland Kaloyan, head of European equity strategy at Société Générale, commented, "Markets are destined to remain volatile in the coming days, as the Middle East conflict is far from resolved. We are likely to see alternating periods of risk-on and risk-off sentiment."
Oil prices remained highly volatile after posting their largest single-day drop in four years on Tuesday, driven by conflicting signals from the U.S. regarding the war with Iran. Tensions showed no sign of easing as President Trump warned Iran against laying mines in the Strait of Hormuz.
**Vulnerabilities in Private Credit** Beyond Middle East tensions, investors are also growing wary of fragilities in the private credit sector. According to a Financial Times report, JPMorgan Chase has cut loan valuations and tightened lending standards amid rising concerns over credit quality, further dampening market sentiment.
Earlier this week, a spike in bond yields—fueled by worries that energy prices could remain elevated—intensified concerns about overheating in other sectors, particularly private credit and the massive capital investments tied to the large-scale deployment of artificial intelligence.
Fears of deteriorating credit quality, especially in the software industry as it faces disruption from AI, have triggered moves from private credit vehicles, including BlackRock’s $26 billion HPS Corporate Lending Fund.
U.S. Treasury yields moved higher, though gains were limited as oil prices remained the key driver. In addition to inflation data, investors are watching the U.S. Treasury’s auction of $39 billion in 10-year notes. The 10-year yield rose 0.8 basis points to 4.143%, while the 30-year yield increased 1.1 basis points to 4.782%, according to Tradeweb.
Eurozone bond yields followed U.S. Treasuries higher. Analysts Michiel Tukker and Benjamin Schroeder at ING noted that if energy prices fall further, the likelihood of a European Central Bank rate hike would diminish, pulling two-year yields down again.
**U.S. Dollar as Safe Haven of Choice** As the conflict enters its second week, the U.S. dollar remains investors’ preferred safe-haven asset. Since the outbreak of hostilities, the dollar has gained more than 1% against a basket of major currencies. By contrast, the Swiss franc—a traditional safe haven—fell 1%, and gold declined 1.5%.
Frank Benzimra, head of Asian equity strategy and multi-asset strategist at Société Générale, stated, "There is really only one safe-haven asset now, and that is the U.S. dollar."
He added, "Even gold or U.S. Treasuries aren’t playing a particularly strong safe-haven role this time. For Treasuries, it’s due to inflation concerns; for gold, some investors may be selling to realize gains and cover losses in equities."
The euro and British pound were sluggish, trading nearly flat at $1.1615 and $1.3432, respectively. The yen weakened, with the dollar rising 0.15% to 158.3 yen.
European Central Bank President Christine Lagarde said on Tuesday that the ECB will do whatever is necessary to control inflation and avoid a repeat of the 2022 energy price shock. Several ECB officials have signaled a preference to wait and see how the situation evolves before taking action.
**Gold Holds Near $5,200** Gold prices fell in early trading but held near $5,200 an ounce as investors continued to digest conflicting signals related to the Middle East conflict.
Gold had risen in the previous session, supported by a weaker dollar and easing inflation concerns due to lower oil prices. However, analysts at ANZ noted, "Developments continue to cloud the outlook for U.S. rate cuts," adding, "This has led to ongoing outflows from gold ETFs."
**U.S. CPI Data Ahead** Traders are preparing for Wednesday’s U.S. inflation report, which comes after the latest jobs data challenged the view that the labor market is stabilizing. The consumer price index (CPI) is expected to show core inflation, excluding volatile food and energy prices, rose just 0.2% last month. This would suggest price pressures were easing before the Iran war introduced new uncertainties to the inflation outlook.
Deutsche Bank analysts wrote, "This is a key data point, as the recent oil price shock has already pushed back market expectations for the next Fed rate cut."
Ulrich Urbahn, head of multi-asset strategy and research at Berenberg, said, "Even though geopolitics are dominating the spotlight, investors still hope the CPI will validate the 'cooling inflation with room for rate cuts' narrative, rather than reigniting fears of stubborn inflation."
**Hedge Funds Pile Back into Software Stocks** After months of heavy selling pressure driven by fears of AI disruption, software stocks appear to have bottomed—at least for now.
The S&P 500 Software Index just posted its best week since May. The closely watched iShares Expanded Tech-Software Sector ETF (IGV.US) recorded its strongest weekly gain in 11 months.
Since February 23, the index has rallied 14%, after Citrini Research sparked market turmoil with a dystopian outlook on AI’s future.
Although a pullback this week trimmed some gains, these stocks still look relatively cheap following the sell-off that began in the second half of last year.
Goldman Sachs’ basket of software stocks trades at a forward P/E ratio of 22, compared to 21 for the S&P 500.
**Stocks to Watch** - Oracle jumped over 10% premarket after beating last quarter’s estimates; its CEO dismissed "SaaS doom" predictions. - Nike rose 2% premarket after Barclays upgraded it to "overweight" and the company secured a $1 billion credit line. - Applied Materials gained over 1% premarket on news it will collaborate with Micron and SK Hynix to develop AI memory chips. - Weibo advanced more than 1% premarket after integrating Kimi Claw. - NEBIUS surged 9% premarket on reports Nvidia plans to invest $2 billion in the company. - Domo skyrocketed 53.6% premarket after reporting Q4 revenue growth and a return to profit on a per-share basis. - Li Auto climbed 2.5% premarket ahead of its earnings report tomorrow; analysts suggest Q4 may mark a bottom and inflection point. - TSMC rose over 2% premarket after February revenue increased 22.2% year-over-year, hitting a record high for the period.
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