GLOBAL MARKETS: Equities drop, oil rallies with Iran-US tensions and high inflation in focus

NEW YORK/LONDON — MSCI’s global equities index fell 1.5% on Wednesday after economic data showed U.S. inflation remained elevated but broadly in line with expectations. Oil prices also climbed as hopes for progress toward peace in the Middle East weakened following renewed exchanges of strikes and threats between the United States and Iran.

Crude prices extended gains after U.S. President Donald Trump warned that the United States would strike Iran “very hard” if no peace agreement is reached. Earlier, he said in a social media post that Iran would “pay the price” for what he described as delays in negotiations.

Following reports from Fox News that Trump was considering additional strikes on Iranian infrastructure, Iran’s president said the threats reflected desperation rather than strength. Meanwhile, U.S. Energy Secretary Chris Wright told Congress he was not aware of any action removing millions of barrels of Iranian oil from the market, contradicting earlier remarks from Trump.

The escalation in tensions fueled volatility across energy markets, amplifying a broader equity selloff tied to renewed concerns over global growth and a continued unwinding of the artificial intelligence-driven rally, according to Michael O’Rourke, chief market strategist at JonesTrading.

U.S. crude rose about 2.1% to $98.03 per barrel, while Brent crude gained 1.8% to $93.10.

“Oil prices have shifted from anxiety to apathy and back again amid renewed skirmishes between the U.S. and Iran,” said Phil Flynn, senior market analyst at The Price Futures Group.

Investor sentiment was also shaped by fresh inflation data showing U.S. consumer prices rising at their fastest annual pace since April 2023. The Labor Department reported that the Consumer Price Index increased 4.2% in the 12 months through May.

Markets are now pricing in expectations that the Federal Reserve will keep interest rates steady at its June 17 meeting, while assigning shifting probabilities to future rate moves, according to CME Group data.

Steve Kolano, chief investment officer at Integrated Partners, said the report does little to reduce the likelihood of further rate adjustments later this year, particularly with energy prices elevated and geopolitical risks unresolved.

Brian Jacobsen, chief economist at Annex Wealth Management, said persistent inflation underscores the urgency of resolving disruptions in the Strait of Hormuz to stabilize global energy flows.

“The clock is ticking loudly to get the Strait of Hormuz open, either through force or through a truce. The Fed isn’t going to try to guess when that will happen, so policymakers need clarity before they meet,” Jacobsen said.

WALL STREET SLIDES

On Wall Street, the S&P 500 fell 1.62% to close at 7,266.99 points. The Nasdaq dropped 1.98% to 25,169.50, while the Dow Jones Industrial Average declined 1.87% to 49,918.78.

MSCI’s global equities index slipped 1.49% to 1,086.98.

Europe’s STOXX 600 index closed down 0.08% after recovering from steeper intraday losses.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 2.3%, while South Korea’s KOSPI dropped 4.5% as technology and AI-related stocks came under pressure.

The CBOE Volatility Index, known as Wall Street’s “fear gauge,” rose to 22.22, easing slightly from its earlier intraday peak.

CURRENCIES

The U.S. dollar index was little changed at 100.01. The euro slipped 0.03% to $1.1539.

Against the Japanese yen, the dollar rose 0.1% to 160.52, remaining near levels widely viewed as a potential trigger for intervention by Japanese authorities. Japan also reported stronger wholesale inflation in May, adding to expectations of further policy tightening by the Bank of Japan.

BONDS

U.S. Treasury yields edged higher across the curve. The 10-year note rose 2 basis points to 4.548%, while the 30-year yield climbed to 5.0282%. The 2-year yield, which is sensitive to Federal Reserve policy expectations, increased to 4.139%.

COMMODITIES

Gold prices were volatile following the inflation data and broader geopolitical uncertainty, extending losses as risk sentiment shifted. Spot gold fell 4.32% to $4,078.49 an ounce.

— Reporting by newsroom staff; Editing by Reuters-style desk