Oil Prices Surge as US-Iran Standoff Stalls Peace Talks
Geopolitical tensions and inflation concerns weigh on global equities as Nvidia’s AI funding deal and Intel’s capital raise draw investor scrutiny.
Oil prices climbed on Tuesday as negotiations between the United States and Iran regarding a peace deal and the reopening of the Strait of Hormuz reached an impasse. Brent crude futures rose 5% over two days to approximately $88 a barrel, marking their highest level since 31 July and nearly 25% above early July lows. The geopolitical standoff has introduced significant uncertainty into global markets, tempering stock performance and complicating efforts to stabilise energy supplies.
US President Donald Trump responded to Tehran’s conditions by calling for compensation for those killed in wars, attacks, and protests, a move that potentially complicates peace efforts. Tony Sycamore, a market analyst at IG, described the situation as a "Mexican standoff" and a "war of attrition," predicting that oil prices may remain volatile within a $75 to $95 range while both sides wait to see who blinks first.
The geopolitical tension coincides with heightened concerns over the global inflation outlook. Jonas Goltermann, chief markets economist at Capital Economics, noted that risks are skewed towards a "hot print" in the upcoming US July consumer price report. This could drive rate expectations higher and spark renewed worries about stagflation, with money markets currently showing a 50/50 chance of a Federal Reserve rate hike in September.
In equity and bond markets, the uncertainty pushed yields higher. U.S. Treasury yields rose in European trading, with 2-year yields up 1 basis point to 4.253% and 10-year yields up 2 basis points to 4.72%. Deutsche Bank strategist Jim Reid observed that the latest news has pushed sentiment in a more hawkish direction, with both yields and commodity prices moving higher after a period where dovish expectations had previously dominated.
Corporate developments also drew investor attention, with Nvidia announcing a $500 billion funding initiative for AI infrastructure in partnership with major financial institutions including BlackRock, Apollo, and Goldman Sachs. However, the move sparked some scepticism, with Sycamore comparing the innovation to the sub-prime mortgages that contributed to the global financial crisis. Nvidia’s 2% bond maturing in 2032 yielded 4.887%, up nearly 7 basis points from Monday. Meanwhile, Intel raised $20 billion through its first share sale since listing in 1971, with its shares in Europe rising around 1%.
In currency markets, the Japanese yen weakened beyond 159 against the US dollar, off last week's high of 155.20, amid suspected intervention efforts by Japan and the United States. The Australian dollar dipped 0.07% to $0.7049 following the Reserve Bank of Australia's decision to hold interest rates steady at 4.35%. The central bank maintained its cash rate for a second consecutive meeting but signalled it might hike again if necessary to control inflation.
Gold, which has risen 8% so far this month, fell 0.6% to $4,365 an ounce. European equities drifted in early trading, with Europe's STOXX 600 remaining near last week's record highs, while MSCI's All-World index edged 0.1% lower. Nasdaq futures rose 0.1%, while those on the S&P 500 were flat, following a decline in benchmark indexes on Monday.
