Oil prices increased and global stock markets declined on Wednesday following U.S. President Donald Trump’s skepticism about the temporary ceasefire in the conflict with Iran.
The S&P 500 dropped by 0.3% on Wednesday after a decline of up to 1.1% earlier in the day. The Dow Jones Industrial Average fell by 1.1% when Trump announced the end of the ceasefire. However, the Nasdaq composite recovered from an initial decline and rose by 0.2% after Trump reassured that recent hostilities did not signify a return to full-scale war.
Canada’s primary index, the S&P/TSX, closed the day with a one percent decrease.
In the oil market, the price of Brent crude surged by 5.2% to $78.02 US, briefly reaching over $80 US by 4 p.m. ET. Although still below previous highs during the conflict, the sudden spike was concerning as oil prices had just returned to pre-war levels.
Concerns arise over the possibility of the Strait of Hormuz being blocked amid ongoing conflict, potentially disrupting oil shipments globally. This could exacerbate inflation, previously expected to ease with lower oil prices, prompting central banks to raise interest rates.
Higher interest rates can mitigate inflation but may slow economic growth and impact various investment prices. Companies heavily reliant on fuel costs, like American Airlines and cruise operator Carnival, experienced notable declines in their stock values.
Stocks in the housing sector also saw declines due to apprehensions about rising Treasury yields affecting mortgage rates and industry activity. Notably, builders like Builders FirstSource, PulteGroup, and D.R. Horton faced significant drops.
Conversely, certain AI industry stocks stabilized after recent volatility, with Nvidia leading gains by 3.7%, exerting notable influence on the S&P 500 due to its market size.
In the bond market, Treasury yields increased alongside oil prices, with the 10-year Treasury yield briefly touching 4.60% before settling at 4.57%. This marked a notable rise from pre-war levels.
Global markets reacted negatively to Trump’s statements, with European markets like Germany’s DAX and France’s CAC 40 seeing declines. Asian markets, including South Korea’s Kospi, displayed volatility, while Hong Kong’s Hang Seng index stood out with a 3% increase.
Hong Kong also witnessed significant growth in shares of Chinese AI startup Zhipu, surging by 13.4%, following the expiration of a lockup period for initial investors, with its share price soaring over 1,300% since its Hong Kong debut.
Overall, market sentiments remained uncertain amidst geopolitical tensions and economic implications of the ongoing conflict with Iran.