World oil prices rose on Wednesday as diplomatic tensions between the United States and Iran intensified, with US President Donald Trump announcing he would not extend a 60-day truce with the Islamic Republic.
The decision has dimmed hopes for an imminent reopening of the Strait of Hormuz, a crucial shipping route through which a significant portion of global oil supply passes.
Oil prices gained around 1% as US and Iranian officials dug in their positions, appearing prepared for an extended standoff that could disrupt energy markets for months.
Inflation concerns mount
The elevated oil prices have stoked inflation expectations across energy-importing nations, sending government debt costs soaring and forcing traders to reassess central bank policy.
“Persistent inflationary concerns are worsening due to elevated oil prices, which weighs especially on those countries with an extra reliance on energy imports such as the UK and Japan,” said Richard Hunter, head of markets at Interactive Investor.
Official data released Wednesday showed UK inflation jumped to 2.9% in July, driven by higher energy bills.
The prospect of prolonged Middle East instability has raised concerns that central banks could be forced to raise interest rates to combat stubborn inflation, further pressuring financial markets.
Tech stocks bear the brunt
Stock markets mostly fell as higher global bond yields, fuelled by inflation and debt concerns, took a heavy toll on technology stocks.
Global bond yields surged to multiyear highs in recent days, reigniting wariness about the debt artificial intelligence firms are taking on to develop their models.
Tech-heavy Asian indices closed sharply lower, with Seoul’s Kospi losing 5.8% as chip titan SK hynix sank almost 10% and Samsung nearly 8%.
After the market closed, SK hynix announced it would buy back $29 billion worth of its shares to support its stock and settle investor nerves.
Tokyo shed more than 3%, with Kioxia down 12.6% and investment giant SoftBank down more than 10%. Shanghai was also sharply lower, while Hong Kong edged higher.
European markets fare better
European equities, less exposed to the technology sector, showed more subdued movements. London and Frankfurt both dipped, while Paris gained.
Susannah Streeter, chief investment strategist at Wealth Club, said the surge in bond yields was driven by “concerns about persistent inflation, heavy government borrowing and the sheer scale of debt being issued”.
“Higher yields make bonds more attractive relative to shares while also raising borrowing costs and reducing the present value of future corporate profits,” she noted.
US tech and chip giants including Nvidia, Intel, Micron and Broadcom took a battering on Wall Street on Tuesday, dragging the Nasdaq lower.
