AI Rally and Global Markets Pause as Middle East Ceasefire Crumbles
Market Movements and Geopolitical Tensions Impact Global Finance
Oil Prices and Currency Fluctuations
SINGAPORE, May 12 (Reuters) - 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 chip rally in chip stocks cooled and traders waited on U.S. inflation figures.
Middle East Ceasefire Developments
U.S. President Donald Trump said the ceasefire with Iran was "on life support" after Tehran's response to a U.S. proposal to end the war made clear the two sides were still far apart.
Global Market Reactions
Brent crude futures were up 0.7% to $105 a barrel. S&P 500 futures dipped 0.2% and even the almost unstoppable KOSPI index in Seoul slid 3%, pulling down other regional markets. [O/R]
MSCI's broadest index of Asian shares excluding Japan fell 1%, while Tokyo's Nikkei was flat. European futures fell 1%.
Trade Talks and Investor Sentiment
Markets are keeping a watchful eye on Trump's Wednesday visit to China, with expectations low for either progress on Iran or on the trade front, with the focus on the status quo holding.
Expert Insights
"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."
Wall Street Performance and Inflation Outlook
Overnight Wall Street had been resilient in the face of rising oil prices with the S&P 500 and Nasdaq eking out the latest in a series of new closing highs. [.N]
U.S. inflation data is due later in the day with the headline consumer price index seen climbing to a hot 3.7% year-on-year.
Federal Reserve Policy Expectations
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.
Bond Yields and Central Bank Actions
Global bond yields rose overnight, led by a selloff in gilts after a speech by Prime Minister Keir Starmer did little to dispel investor doubts about his political survival, following Labour's heavy defeat in last week's local elections.
Japanese Market Developments
Japan's 10-year government bond yield rose to a 29-year high of 2.54% ahead of an auction later in the day. A summary of opinions from the Bank of Japan's April meeting reinforced a growing hawkish shift on the board, keeping the door open for a June rate hike.
Benchmark 10-year Treasury yields were steady at 4.42%.
Currency Markets and International Coordination
In currency trade the dollar was on the front foot and rose to 157.53 yen. U.S. Treasury Secretary Scott Bessent is in Tokyo for meetings with top Japanese officials, but his Japanese counterpart made no explicit mention of his endorsement for Japan's currency intervention to reporters on Tuesday.
Statements from Japanese Finance Officials
"We agreed that we are coordinating extremely well on recent market moves, including exchange rates," said Japanese Finance Minister Satsuki Katayama.
Other Major Currencies and Fiscal Updates
The euro slipped 0.2% to $1.1762 and the Australian dollar fell 0.25% to $0.7232. Australia's government is set to deliver a narrower than previously flagged budget deficit on Tuesday.
(Reporting by Tom Westbrook)
