Oil prices jumped and stocks fell again on Tuesday after fresh US strikes against Iran marked a fresh escalation in hostilities that have fueled fears over their already fragile ceasefire and the chances of another spike in inflation.
Technology firms were once again in question, with South Korea’s Kospi extending a painful sell-off as chip titan SK hynix continued to tumble amid growing fears of an AI boom.
The latest attacks came after Iranian forces struck a merchant ship in the Strait of Hormuz – through which a fifth of global oil passes – early on Sunday, before announcing the closure of the waterway.
This led to a series of US strikes on sites in the Islamic Republic, which responded by hitting targets in Bahrain, Jordan, Kuwait and Oman.
Ahead of the latest US strikes, President Donald Trump told conservative radio host Hugh Hewitt on Monday that “we’re going to hit them very hard tonight and we’re going to hit them hard tomorrow.”
He later stated on Social Truth that the United States would be known as ‘GUARDING THE STRAIT OF HORMUZ’ and would impose a 20 percent tariff on all cargo shipped through the waterway.
While Iran’s ports will be blocked again, Trump said “all other countries will have fair and open use of the strait.”
However, he also said a deal with Tehran to end the crisis was still possible.
“Yes, I think a deal is possible. Of course, yes,” he told reporters in the Oval Office. “We had a deal with them two days ago and then they said, ‘Oh, we can’t do that deal. We have to negotiate it further.”
Oil prices rose more than nine percent on Monday on fears of renewed conflict and the possibility that a new surge in inflation could force the Federal Reserve and other central banks to raise interest rates soon.
And they continued to rise on Tuesday, gaining more than one percent.
“With Trump, one never knows how seriously such statements should be taken, but Gulf allies would not be happy with this plan and it almost certainly violates international law,” said BNZ’s Jason Wong.
“The 20 percent tax would add about $16 to the cost of each barrel of oil passing through the strait on a typical supertanker.
“It remains to be seen whether the plan will stick – probably not – and whether it is simply a negotiating tactic aimed at forcing Iran to stop its military attacks on ships in the area.”
Renewed hostilities once again weighed on stocks, complicating the flight from technology firms that has characterized markets in recent weeks as traders worry that the AI-led sector rally has gone too far.
Seoul suffered heavy selling again, with SK hynix losing more than three percent, a day after a 15 percent collapse. Its New York-listed shares – which rose more than 13 percent in their debut on Friday – fell more than nine percent on Monday.
Tokyo, Hong Kong, Sydney, Singapore, Taipei, Wellington, Manila and Jakarta also fell sharply.
The losses came at the start of a big week for traders, with earnings season set to kick off, Fed chief Kevin Warsh to testify before Congress and US inflation data to be released.
Meanwhile, Fed Governor Christopher Waller raised concerns about an early interest rate hike as inflation continues to remain elevated.
“If we get another hot reading on core inflation this week, then (the rate-setting committee) will have to consider tightening monetary policy in the near term,” he said on Monday.
– Key figures around 0230 GMT –
West Texas Intermediate: UP 1.3 percent to $79.15 a barrel
Brent North Sea crude: up 0.7 percent to $83.91 a barrel
Tokyo – Nikkei 225: DOWN 0.8 percent to 66,678.36 (break)
Seoul – Kospi: DOWN 2.6 percent to 6631.83
Hong Kong – Hang Seng Index: DOWN 0.2 percent to 24,166.38
Shanghai – Composite: FLAT percent at 3,912.31
Euro/dollar: UP at $1.1394 from $1.1384 on Monday
Pound/dollar: UP at $1.3358 from $1.3353
Dollar/yen: DOWN at 162.35 yen from 162.43 yen
Euro/pound: UP to 85.30 pence from 85.25 pence
New York – Dow: DOWN 0.3 percent at 52,498.64 (close)
London – FTSE 100: FLAT at 10,498.29 (close)
