On Monday, the announcement of renewed sanctions against Iran and a proposed transit fee for vessels passing through the Strait of Hormuz triggered a broad decline in U.S. stock markets. The S&P 500 fell 0.8%, the Nasdaq dropped 1.6%, and the Dow Jones Industrial Average lost over 100 points. Brent crude oil surged 9.6% in a single day, closing at $83.80 per barrel, marking its largest daily gain since 2020.
This shockwave directly impacted the Asia-Pacific markets. During Tuesday's Asian trading session, South Korea's KOSPI index plummeted by over 5% at one point, prompting the Korea Exchange to activate a circuit breaker for program selling, temporarily halting such sales on the KOSDAQ market. The index later pared losses to around 2%. Australia's ASX 200 declined approximately 0.29%. Japan's 20-year government bond auction saw a bid-to-cover ratio of 4.52, significantly higher than the 12-month average of 3.54, leading to extended gains in Japanese government bond futures after the results. However, a key tail risk indicator matched a record low set in 2010.
In the oil market, WTI crude futures climbed further during Asian trading, rising above $80 per barrel, while Brent crude briefly surpassed $85. Spot gold continued its downward trajectory, breaking below the $4000 level.
South Korean Market's Wild Ride
The KOSPI experienced extreme volatility in the morning session, swinging from a drop exceeding 5% to a loss of less than 2%, erasing an earlier V-shaped recovery that had seen gains over 2%.
Two primary factors drove this intense market volatility. First, the Middle East shock: soaring oil prices have heightened inflation expectations, directly impacting South Korea, a nation highly dependent on energy imports. The U.S. 2-year Treasury yield concurrently rose by 2 basis points to 4.28%, reflecting weakening risk sentiment. Second, pressure from SK Hynix: its stock decline widened to 3.5% intraday, continuing weakness from a 12% plunge the previous day. On July 13th, local brokerage KIS issued a forecast projecting SK Hynix's Q2 operating profit at 60.4 trillion won—a massive 556% year-on-year increase but approximately 8% below the market consensus of 65 trillion won. KIS attributed this to the high proportion of HBM revenue, which is constrained by long-term contract prices, resulting in an average selling price (ASP) increase below the market average. KIS concurrently lowered its 2026 and 2027 profit forecasts by 9% and 11% but maintained a 380,000 won target price, emphasizing that the "revision is merely an adjustment for long-term contracts, not a deterioration in fundamentals."
Japan's Nikkei 225 also turned positive after an initial 1.17% decline, following South Korean stocks, but fell again in the afternoon session, while Australia's ASX 200 remained down about 0.29%.
Escalating Middle East Tensions
U.S. Central Command (CENTCOM) stated late Monday that American forces had conducted a third consecutive night of strikes against Iran. CENTCOM posted on social media platform X that "these strikes will continue to impose significant costs on Iranian forces and degrade their ability to attack innocent civilians and commercial shipping in the Strait of Hormuz."
According to reports citing Iranian media, the U.S. Navy's Fifth Fleet headquarters in Bahrain and a U.S. military base in Jordan were targeted by missile attacks. Air raid sirens also sounded near the U.S. embassy in Baghdad's Green Zone around 3:30 AM local time.
Responding to the proposed 20% transit fee for the Strait of Hormuz, Iranian Foreign Minister Araghchi stated on social media, "The U.S. President is correct; whoever ensures the security of shipping in the Strait of Hormuz should receive this service fee. Iran has always been the guardian of the strait and will remain so. However, 20% is indeed too high; we will be reasonable."
Japan's Chief Cabinet Secretary Kihara expressed "serious concern" over the worsening situation in the Middle East. Japan's Minister of Economic and Fiscal Policy also stated they are "closely monitoring the impact of Middle East developments on Japanese prices and the economy."
Spot gold continued to decline, breaking below the $4000 level.
Key Focus for the Market
Market attention is now focused on two major events. First, the earnings season: JPMorgan Chase, Goldman Sachs, and Bank of America are scheduled to report earnings before the U.S. market opens on Tuesday. Michael Graham, Director of Research and Investment Strategy at Canaccord Genuity, told financial media, "Today is a bit of an outlier, with everything down. But broadly, this doesn't change how we view the earnings season. We remain constructive on mega-cap tech overall, seeing potential for earnings upside." According to FactSet data, analysts expect S&P 500 Q2 earnings to grow 23.6% year-over-year.
Second, June CPI data: Scheduled for release at 8:30 AM ET on Tuesday. A survey of economists by Dow Jones anticipates the headline CPI to decline 0.2% month-over-month, with an annual rate of 3.8% (dragged down by falling energy prices). Core CPI is expected to rise 0.2% monthly, with an annual rate of 2.8%, still significantly above the Federal Reserve's 2% target. Additionally, the new Federal Reserve Chair will deliver the first semi-annual monetary policy report to Congress.
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