Fears of a US-Iran war spread, global stock markets close lower, and US government bond yields rise instead of falling

Due to the escalation of Middle Eastern military conflicts, global financial markets have experienced intense volatility. According to AP News, fears of war spreading have caused tourism-related stocks such as airlines, cruise lines, and hotels to be hit hardest by rising oil prices, resulting in overall weakness. Meanwhile, manufacturing data outperformed expectations, supporting government bond trends. U.S. Treasury yields have risen instead of falling, which may limit the Federal Reserve’s rate cut decisions. Investors should closely monitor the latest developments in the U.S.-Iran conflict this week and manage their assets accordingly.

Rising energy costs weaken consumer purchasing power

Unrest in the Middle East has raised concerns over supply disruptions, leading to significant jumps in crude oil and natural gas prices. U.S. benchmark crude oil rose 7.6% to $72.12 per barrel. Higher energy costs will directly impact end-market consumption; gasoline prices are rising, increasing household transportation and daily expenses. Due to major liquefied natural gas suppliers halting production amid the war, European natural gas prices are also climbing, foreshadowing a substantial increase in winter heating costs. The geopolitical conflict-driven rise in energy costs and inflation will weaken consumer purchasing power.

Tourism, hotel, and airline stocks decline

High oil prices pose a direct threat to fuel-dependent industries, with airlines and cruise lines hit hardest. United Airlines and American Airlines stocks fell 3.3% and 4.3%, respectively, due to soaring fuel costs and operational disruptions from airport closures in the Middle East. Norwegian Cruise Line Holdings dropped 11.9%, reflecting market concerns that consumers will cut back on non-essential travel after covering basic living expenses. Additionally, hotel, discount retail, and real estate developers underperformed the broader market.

U.S. Treasury yields rise instead of falling, affecting Fed rate cuts

As market risk aversion increases, U.S. Treasury yields have not declined as usual; instead, they have risen due to heightened inflation expectations. The 10-year U.S. Treasury yield increased from 3.97% to 4.03%, indicating market anticipation that rising oil prices will keep inflation above policy targets. Better-than-expected manufacturing data further supported the yield increase. The persistent rise in bond yields may lead the Federal Reserve to maintain current interest rates rather than cut them.

Global stock markets mostly decline, with ongoing attention to future developments

Major global stock indices mostly fell due to geopolitical risks, with Germany’s DAX, France’s CAC 40, and Hong Kong’s Hang Seng dropping over 2%. Only the Shanghai stock market saw a slight increase. The S&P 500 and Nasdaq declined 0.3%, showing initial resilience. Morgan Stanley strategist Michael Wilson noted that historically, Middle Eastern conflicts tend to have short-term market impacts. For a structural disruption to U.S. stocks, oil prices would need to break above $100 per barrel. Although oil prices have risen significantly, they remain below that threshold. Market participants are closely watching whether the conflict will evolve into a prolonged war and assessing the damage to energy supply chains, which will inform future asset allocation adjustments.

This article, “U.S.-Iran War Panic Spreads, Global Stocks Decline, U.S. Treasury Yields Rise Instead of Falling,” was first published by Chain News ABMedia.