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(Bloomberg) — A renewed advance in oil sent stocks lower as bond yields rose on concern that an escalation of hostilities between the US and Iran will hinder prospects for a peace deal, with elevated energy costs fueling inflation risks.
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As equities dropped from all-time highs, the S&P 500 halted a nine-day winning streak. Brent crude topped $97 a barrel, climbing for a third consecutive day. Higher oil prices alongside signs of labor-market resilience fueled losses in Treasuries. That’s added to expectations the Federal Reserve’s next interest-rate move will be a hike.
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The US and Iran clashed again overnight, with Kuwait and Bahrain caught in the crossfire of one the most serious flare-ups since a ceasefire went into effect in early April.
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The developments follow days of rising tension, including over Israeli operations against Tehran-backed Hezbollah militants in Lebanon, that threatens to derail US-Iran talks about an interim peace deal. The sides have agreed on a rough framework that should extend their truce by two months and reopen the Strait of Hormuz, though negotiations over the final details are dragging on.
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The risk that Iran is covertly pursuing nuclear weapons is higher today than before the US and Israel launched their first military attacks on the Islamic Republic a year ago, according to western officials who cited new data circulated by the United Nations atomic watchdog.
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President Donald Trump said Iran has agreed it won’t have a nuclear weapon, in an interview on the Pod Force One podcast.
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The fate of the global economy hinges on the conflict in the Middle East that has already stifled growth and could yet trigger recessions and significantly stronger inflation, the OECD said.
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On the economic front, US companies in May added the most jobs since January 2025, signaling the labor market may be gaining momentum despite rising energy costs sparked by the Iran war.
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The figures support the view that the labor market may be strengthening after several months of uneven hiring, as job openings climb and layoffs remain low. If confirmed in official government data, the trend could support a shift toward bets that the Fed is more likely to raise interest rates than reduce borrowing costs in the months ahead.
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Elsewhere, the yen remained near the 160 level versus the dollar following remarks by Bank of Japan Governor Kazuo Ueda that make an interest rate hike this month sound likely but not certain.
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