Oil Jumps on Iran Attack, Asian Stocks Set to Drop: Markets Wrap

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(Bloomberg) — Oil climbed as the US military launched fresh air strikes in Iran and revoked a waiver that allowed it to sell crude globally. Stocks in Asia were poised to drop for a second day as a selloff in chipmakers rippled across markets.

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West Texas Intermediate rose 2.9% to above $72 a barrel, extending gains from late Tuesday, as the US military renewed strikes on Iran after recent attacks on ships transiting the Strait of Hormuz. Treasury futures fell and a Bloomberg gauge of the dollar strengthened.

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Equity-index futures for Japan, South Korea and Australia pointed to declines after US benchmarks fell on Tuesday, with a gauge of chip stocks dropping more than 4%. The Nasdaq 100 slid 1.8%.

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The latest attacks in the Middle East test the late-June peace deal and add a new layer of concern for equity markets already concerned whether a rally fueled by euphoria over artificial intelligence has run ahead of itself. Warnings of a bubble have been loudest in parts of the market riding the AI wave, with investors increasingly concerned whether the lofty valuations can be backed by strong earnings.

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“While we remain confident in AI’s growth story and continue to see attractive opportunities in semis and hardware, we have also highlighted that the next leg of equity gains is likely to be marked by a broadening of market leadership,” said Ulrike Hoffmann-Burchardi at UBS Chief Investment Office. “Investors should ensure diversified exposure.”

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Elsewhere, gold extended its drop to below $4,100 an ounce after the US Treasury Department revoked a waiver allowing the sale of Iranian oil, stoking concern that elevated energy prices will prompt the Federal Reserve to raise interest rates.

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Taken together with the strikes, the US actions marked the most serious threat yet to the interim agreement signed between the two countries’ leaders on June 17. They also threatened to scuttle negotiations aimed at achieving a permanent peace within 60 days of that deal.

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The “powerful strikes” were meant to “impose heavy costs for targeting and attacking commercial shipping crewed by innocent civilians in an international waterway,” US Central Command said in a statement on X. 

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Brent oil prices had touched a peak near $125 a barrel in late April, two months after the US and Israel began the military campaign against Iran. Prices returned toward pre-conflict levels this month on growing signs of a recovery.

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What Bloomberg strategists say…

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“It’s premature to say whether this is ‘the big one’, i.e. a major structural reversal in the AI trade. It does seem fair, though, to say that the era of the ‘easy’ AI trade — the one with the smooth parabolic rally — is indeed in the rearview mirror.”

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—Cameron Crise, Macro Strategist, Markets Live. For the full analysis, click here.