Global Stocks Slide As Mideast Escalation Risk Mounts: Markets Wrap

Equities fell as growing speculation that the US will directly support Israel in its war against Iran fueled geopolitical uncertainty and concerns about the inflationary impact of higher crude prices.

Europe's Stoxx 600 index retreated 0.4%, setting the gauge on course for a third day of losses. Asian shares dropped more than 1%. US equities futures also fell, while the dollar was little changed against a basket of major currencies. Cash trading in US stocks and Treasuries is closed for the Juneteenth holiday. 

While most of the price reaction to a week of conflict in the Middle East has so far been concentrated in oil, fears of escalation have chilled investor sentiment across the board. 

Earlier, Bloomberg reported that senior US officials are preparing for a possible strike on Iran in the coming days. Markets were already on edge after the Federal Reserve downgraded its estimates for growth this year and projected higher inflation.

“If the US does strike, you're going to see a big knee-jerk reaction,” said Neil Wilson, investor strategist at Saxo UK. “No one will be wanting to make big long bets.”

Trump has for days publicly mused about calling for a strike on Iran. He told reporters at the White House Wednesday that he prefers to make the “final decision one second before it's due” because the situation in the Middle East is fluid.

The odds for the US to become involved are “quite high at this moment in time,” said Anna Rosenberg, head of geopolitics at Amundi Investment Institute.

“For the US, this is a moment to take out a big geopolitical headache, which is Iran potentially developing a nuclear weapon,” Rosenberg told Bloomberg TV. “Having said that, acting comes with a lot of consequences too. Trump will have to make a really difficult decision.”

In the first among a number of monetary policy decisions in Europe, the Swiss National Bank cut its interest rate to zero. Policymakers are seeking to deter investors from pushing up the franc, which has gained almost 10% against the dollar so far this year.

Norway's central bank surprised with its first post-pandemic reduction of borrowing costs, with officials signaling inflation has been sufficiently tamed to ease constriction even more this year. The krone slid.

Later on Thursday, the Bank of England is likely to keep rates at 4.25% and signal it is sticking with its one-cut-every-other-meeting approach as officials try to strike a balance between elevated inflation, higher oil prices and a slowing economy. 

In commodities, oil prices swung as the market focused on the hostilities in the Middle East. Brent neared $77 a barrel after closing marginally higher on Wednesday, and West Texas Intermediate traded below $76. 

“Direct US involvement in an attack on Iran would almost certainly trigger a major spike in oil prices,” said Manish Bhargava, chief executive officer at Singapore-based Straits Investment. “This surge would aggravate global inflation, making central bank efforts — like the Fed's — to control it more difficult and potentially delaying interest rate cuts.” 

On Wednesday, the Fed voted unanimously to hold its benchmark rate. Chair Jerome Powell noted that increases in tariffs are likely to boost prices and added that the effects on inflation could be more persistent. While the median expectation for two rate cuts in 2025 didn't change, a number of officials lowered their projections. 

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 0.4% as of 11:16 a.m. London time

• S&P 500 futures fell 0.5%

• Nasdaq 100 futures fell 0.6%

• Futures on the Dow Jones Industrial Average fell 0.4%

• The MSCI Asia Pacific Index fell 1.3%

• The MSCI Emerging Markets Index fell 1.3%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.1476

• The Japanese yen fell 0.2% to 145.45 per dollar

• The offshore yuan was little changed at 7.1901 per dollar

• The British pound was little changed at $1.3429

Cryptocurrencies

• Bitcoin rose 0.2% to $105,046.98

• Ether rose 0.3% to $2,537.59

Bonds

• The yield on 10-year Treasuries was little changed at 4.39%

• Germany's 10-year yield advanced two basis points to 2.52%

• Britain's 10-year yield advanced two basis points to 4.52%

Commodities

• Brent crude rose 0.2% to $76.88 a barrel

• Spot gold rose 0.1% to $3,372.92 an ounce