Oil prices climbed on Tuesday as negotiations between the United States and Iran over a peace agreement and the reopening of the Strait of Hormuz reached a deadlock. Meanwhile, rising uncertainty over the global inflation outlook weighed on equity markets worldwide. Iran set forth a series of conditions for reopening the vital waterway, prompting US President Donald Trump to counter on Monday with demands that Tehran compensate victims of various wars, attacks, and protests. This added a new layer of complexity to talks aimed at restoring access to the key shipping route.
Brent crude oil futures have surged 5% in just two days, reaching approximately $88 per barrel, the highest level since July 31, and marking a nearly 25% increase from the early July low, which was a four-month trough. IG market analyst Tony Sycamore commented, "The current situation is a classic Mexican standoff, with both sides waiting to see who blinks first. The negotiations have essentially become a war of attrition." He added, "As the market waits for both parties to reveal their bottom lines, oil prices are likely to trade in a $75–$95 range."
On Wednesday, the US will release the July Consumer Price Index (CPI) data. While this report will not yet reflect the recent surge in energy costs, it will still significantly influence market expectations for the Federal Reserve's September meeting. Money market pricing indicates a 50% probability of a rate hike in September. Capital Economics' chief market economist, Jonas Goltermann, stated, "We see a risk of an upside surprise in the data. A higher-than-expected inflation reading could trigger a rebound in rate expectations and reignite fears of stagflation."
During European trading hours, US Treasury yields rose, leading to a mild sell-off across global bond markets. The 2-year Treasury yield increased by 1 basis point to 4.253%, while the 10-year yield climbed 2 basis points to 4.72%. Deutsche Bank strategist Jim Reed noted, "Last week, the market was leaning towards a dovish outlook, but the latest geopolitical developments have shifted expectations to a more hawkish stance, with Treasury yields and commodity prices rising in tandem."
The European Stoxx 600 index traded in a narrow range early in the session, hovering near the record high set last week. The MSCI All-World index edged down 0.1%. Nasdaq futures were up 0.1%, while S&P 500 futures were flat, following declines on Monday for both major US stock benchmarks.
Overnight, Nvidia announced a joint initiative with six major financial institutions, including BlackRock, Apollo, and Goldman Sachs, to launch an AI infrastructure financing program worth over $500 billion. The announcement provided few details, including the terms of the financing, the commitments from each party, or how the $500 billion pool would integrate with existing financing arrangements. Sycamore added, "I can't help but draw a parallel to the early days of subprime mortgage products—a financial innovation that ultimately sparked a global financial crisis."
Market concerns were also reflected in a renewed sell-off of Nvidia bonds. On the Tradegate platform, the yield on Nvidia's 2032 maturity, 2% coupon bond was 4.887%, up nearly 7 basis points from Monday. On the other hand, Intel raised $20 billion through a secondary stock offering, marking the first time the chipmaker has issued new shares since its initial public offering in 1971. Intel shares were up about 1% during European trading.
In the foreign exchange market, the Japanese yen was once again in focus, with the currency weakening past the 159 level against the dollar, moving away from the recent high of 155.20, which was attributed to suspected joint intervention by Japan and the US. The move came during a Japanese holiday, resulting in thin liquidity, a condition that can amplify the impact of small trades and is often seen as a potential window for government intervention. The Reserve Bank of Australia held its cash rate steady at 4.35% for the second consecutive meeting but signaled that further rate hikes are possible if inflation management requires it. The Australian dollar fell 0.07% to $0.7049 following the announcement.
In commodities, Gold, which has gained 8% this month, fell 0.6% on the day to $4,365 per ounce.
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