AI rally fizzles as Middle East ceasefire goes on ‘life support’

Oil rises, stocks fall as Middle East ceasefire falters and Strait of Hormuz remains blocked.

Oil crept higher and the dollar rose on Tuesday as hopes faded for ‌a deal to get ships moving through the Strait of Hormuz, while a red-hot rally in chip stocks cooled and traders waited on U.S. inflation figures. U.S. President ​Donald Trump said the month-old ceasefire with Iran was “on life support” after Tehran’s response to a U.S. plan to end the war made clear the sides ​were ​far apart.

Brent crude futures were up 2% to about $106.4 a barrel.

In Europe, the STOXX 600, which is still only 4% below late February’s record high, was down 1.2% in early trading, while U.S. stock futures for the S&P 500 and Nasdaq ⁠were down 0.4% and 0.7%, respectively. MSCI’s broadest index of Asian shares excluding Japan fell 0.6%. The shine even came off the almost unstoppable KOSPI index in Seoul, which recoiled as it approached 8,000 points and dropped about 3.5%, pulling down other regional markets. Deutsche Bank strategist Jim Reid said with U.S. and Iran appearing no closer to resolving their negotiation deadlock, Brent crude prices were extending the previous day’s rally. “Markets ​are also pricing rising ‌chances of lasting disruption, with ⁠6-month Brent futures up ⁠2.54% to $89.50 a barrel yesterday,” he said. Markets are keeping a watchful eye on Trump’s visit to China, which begins on Wednesday, with expectations low ​for either progress on Iran or on the trade front.

“Investors should not expect sweeping agreements. A ‘win’ would mean ‌no new tariffs or export controls, and perhaps small symbolic deals, such as ⁠agricultural purchases, aircraft orders, or signals on rare earths,” said Daniel Casali, chief investment strategist at Evelyn Partners.

“These may seem minor, but stability at the margin matters.”

APRIL INFLATION SPIKE EXPECTED IN US DATA

U.S. inflation data is due later on Tuesday, with the headline consumer price index seen posting a 3.7% year-on-year increase, after a 3.3% rise a month earlier.

Any suggestion that the Federal Reserve may need to hike this year – rather than cut as investors had expected before the war – could rattle markets. Global bond yields have climbed, led by a selloff in gilts after a speech by Prime Minister Keir Starmer on Monday did little to dispel investor doubts about his political survival, following Labour’s heavy defeat in local elections.

UK gilt yields rose sharply in early trading on Tuesday. The yield on ‌30-year bonds rose 11 basis points to 5.794% , the highest since 1998, according ⁠to LSEG data. Sterling fell 0.7% to $1.352, making it the worst-performing major currency against the dollar.

Benchmark ​10-year Treasury yields were up 2 bps at 4.43%. In the foreign exchange market, the dollar was on the front foot, rising 0.2% against the yen to 157.525. After meeting with Japanese Finance Minister Satsuki Katayama in Tokyo, U.S. Treasury Secretary Scott Bessent said on X that coordination with Japan was “constant ​and robust” in ‌tackling undesirable, excessively volatile currency moves.

The euro slipped 0.3% to $1.1747 and the Australian dollar fell 0.5% to $0.7214. ⁠Australia’s government is expected to deliver a narrower budget ​deficit than previously flagged on Tuesday.

© ZAWYA