Oil prices saw an increase while global stock markets experienced a decline in volatile trading on Wednesday following U.S. President Donald Trump’s comments casting doubt on the temporary ceasefire 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 also fell by 1.1% after Trump’s statement regarding the end of the ceasefire agreement. However, the Nasdaq composite managed to recover from an initial slump and rose by 0.2% after Trump clarified that the recent conflict did not indicate a return to full-scale war.
Canada’s primary index, the S&P/TSX, closed the day down by approximately 1%.
In the oil market, the price of a barrel of Brent crude surged by 5.2% to $78.02 US around 4 p.m. ET, briefly surpassing $80 US. While this level remains below the peak seen earlier in the conflict, with the most actively traded contract hitting nearly $120 US, the sudden increase is concerning as oil prices had just recently stabilized.
There are apprehensions that a prolonged conflict could disrupt the flow of oil through the Strait of Hormuz, potentially leading to a bottleneck of oil tankers in the Persian Gulf instead of fulfilling global crude demands. This scenario could exacerbate inflation, which experts anticipated would ease with lower oil prices, possibly prompting central banks to raise interest rates.
Higher interest rates can help control inflation but may also slow down economic growth and impact the prices of various investments.
On Wall Street, companies heavily reliant on fuel witnessed significant declines. American Airlines saw a 4% decrease, while cruise operator Carnival experienced a 3.9% drop.
Stocks of firms in the housing sector were also among the leading decliners, influenced by concerns that rising Treasury yields could lead to increased mortgage rates, dampening the industry. Builders FirstSource, a supplier of building materials, fell by 5.4%, with homebuilders PulteGroup and D.R. Horton declining by 5.4% and 4.6%, respectively.
Offsetting these losses were some influential stocks in the artificial intelligence sector, which have faced pressure recently due to fears of overvaluation and doubts regarding the profitability of investments in AI technology.
Notably, Nvidia surged by 3.7%, playing a pivotal role in lifting the S&P 500 due to its status as the largest stock on Wall Street.
In the bond market, Treasury yields increased in tandem with oil prices, with the 10-year Treasury yield briefly nearing 4.60% before settling at 4.57%. This uptick follows the escalation from 4.55% the previous day and 3.97% before the conflict with Iran commenced.
Internationally, European markets experienced exacerbated losses after Trump’s comments on the ceasefire status. Germany’s DAX and France’s CAC 40 both lost 2.2%.
In Asian markets, South Korea’s Kospi saw a 5.3% decline, while Hong Kong’s Hang Seng index bucked the trend with a 3% increase.
Among the notable movements in Asian markets, shares of Chinese AI startup Zhipu, also known as Z.ai and traded as Knowledge Atlas Technology in Hong Kong, surged by 13.4%. The company’s stock price has soared by over 1,300% since its trading debut in January, with a six-month lockup period for cornerstone investors set to expire this week.