Stocks retreated from record highs on Thursday after a fresh US military strike on Iran and Kuwaiti reports of missile attacks dented investor confidence in a peace deal that many see as key to easing global inflation risks.
Oil rose as much as 4% and bond prices tumbled as the escalation muddied signals on peace talks, after US President Donald Trump dismissed an Iranian report of a deal to resume traffic through the Strait of Hormuz.
“Over the next two weeks, we expect either a deal for a new ceasefire, or the current ceasefire will have collapsed with active hostilities resuming,” said Madison Cartwright, a senior geo-economics analyst at CBA.
He put a 70% probability on a deal, but said the fate of the strait remained uncertain.
“Insurance through the strait has become prohibitively expensive and it’s unclear how and at what price insurance will be made available,” he added.
“It is also not clear if Iran will charge a toll, or a toll by another name.”
The US military said it had carried out new strikes targeting an Iranian drone operation, while Tehran said it had attacked a US airbase in Kuwait.
With transits through the strait still at a trickle, Brent crude was up 2.5% at $96.6 a barrel.
The price has fallen back from four-year highs above $126 in late April, but remains 33% above pre-war levels and 50% higher than a year ago.
Yields on 10-year Treasury notes were up 1.7 basis points at 4.5%, as sustained high oil prices kept upward pressure on inflation expectations. Euro zone yields also rose, with Germany’s 10-year Bund up 1.5 bps at 3%.
