STOCK indexes around the world tumbled and government bonds rose with the dollar yesterday, as a widening conflict in the Middle East pushed oil prices up sharply for a second straight day and exacerbated investor concerns about inflation.
US crude oil prices jumped more than 7 per cent along with Brent as the war, started over the weekend, intensified with Israel attacking Lebanon, and Iran responding with strikes against energy infrastructure in Gulf countries and tankers in the Strait of Hormuz, through which a fifth of the world’s oil and liquefied natural gas typically passes.
Wall Street indexes were down nearly 2pc, following European stocks’ more than 3pc loss after MSCI’s Asia Pacific index closed down 3.5pc. South Korea led the decline in Asian markets yesterday, with a weaker won helping to send the KOSPI down 7.2pc.
“The market is concerned that the US is getting pulled deeper into this conflict than investors had expected with the closure of the Strait of Hormuz and increased risk of broader and longer regional instability,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. “The administration is pulling us into a conflict where historically, issues last and last. We could get pulled in even deeper.”
And rising oil prices raise concerns about inflation, Ghriskey said: “It will send energy stocks higher but it is a negative to the global economy.”
Yesterday afternoon, the Dow Jones Industrial Average fell 904.58 points, or 1.85pc, to 48,000.20, the S&P 500 fell 118.38 points, or 1.73pc, to 6,762.65 and the Nasdaq Composite fell 415.20 points, or 1.82pc, to 22,333.66.
MSCI’s gauge of stocks across the globe was down 25.73 points, or 2.45pc, to 1,024.10 while the pan-European STOXX 600 index fell 3.18pc.
After paring some gains, Cboe’s Volatility index, also known as Wall Street’s fear gauge, was up 3.6 points at 25.06 after rising as high as 28.15, which was its highest level since November 20.
Meanwhile, government bond markets from the euro zone to the United States and Britain sold off sharply on concerns that sustained higher inflation would likely force central banks to turn more hawkish.
US Treasury yields rose sharply for a second straight session with the benchmark US 10-year note’s yield up 1.3 basis points at 4.065pc, from 4.052pc late on Monday.
The 30-year bond yield rose 0.9 basis points to 4.7078pc and the 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 2.1 basis points to 3.508pc.
In currencies, the US dollar climbed to multi-month peaks against the euro, sterling and yen as the Middle East conflict triggered broad demand for safe-haven assets and fuelled expectations of prolonged global inflation.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.78pc to 99.27, with the euro down 0.86pc at $1.1586.
Against the Japanese yen, the dollar strengthened 0.29pc to 157.8 and sterling weakened 0.76pc to $1.3303.
In cryptocurrencies, bitcoin fell 1.35pc to $68,496.40.
In precious metals, gold prices were weighed down by a stronger dollar and fading prospects of an interest rate cut as inflation concerns intensified.
Spot gold fell 4.01pc to $5,113.22 an ounce. US gold futures fell 4.63pc to $5,049.30 an ounce.
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