David Morrison, Senior Market Analyst at FCA regulated fintech and financial services provider Trade Nation

Asian, European and FX Markets

Asian-Pacific stock indices ended lower on Wednesday as investors reacted to elevated global bond yields and renewed geopolitical tensions tied to the Middle East conflict. Sentiment weakened after President Trump said he had been “an hour away” from authorising another strike on Iran before delaying the decision for several days following pressure from Gulf leaders. Sentiment has also been dented by the sharp increase in global bond yields. Yesterday, yields on longer-dated Japanese Government Bonds (JGBs) flew higher, with the 10-year hitting levels last seen 29 years ago. The yield on the 30-year broke above 4% for the first time ever. They have pulled back a touch since, in line with the moves across US Treasury yields. Although the yields on shorter-dated maturities continue to rise.

The moves come as the US/Iran war approaches the end of its third month, and on growing fears that the initial surge in the oil price is in danger of becoming embedded, giving inflation a tailwind. Japan’s Nikkei fell 1.2%, while Hong Kong’s Hang Seng and the Shanghai Composite dropped 0.6% and 0.2% respectively. Australia’s ASX 200 fell 1.3%, and South Korea’s Kospi dropped 0.9%. Major constituent, Samsung Electronics, eked out a gain of 0.2%, even after talks between management and the union broke down ahead of the strike due to start tomorrow. India’s Nifty 50 bucked the trend and was up 0.3% going into the close.  

European stock indices were a touch weaker first thing. As across the Asian-Pacific regions, investors have been spooked by rising global bond yields on inflation worries and ongoing geopolitical uncertainty. But all the European majors began to rally soon after the open as traders noted some early strength across US stock index futures. In fact, the Euro Stoxx 50 and German DAX soon recouped all their losses from yesterday, although the gains for the French CAC and UK’s FTSE 100 were far more modest. The US/Iran war remains a concern, as it is now approaching the three-month stage. Oil prices remain elevated, and this is feeding into fears that inflation is taking off around the world.

Last week saw the release of hotter-than-expected US inflation numbers, particularly wholesale inflation, which analysts expect to feed back into consumer prices. This has seen US Treasury yields climb sharply. Yesterday the yield on the 30-year Treasury Bond hit 5.19% - its highest level since 2007, just before the Great Financial Crisis. European government bond yields have also risen sharply. This reflects growing expectations that global interest rates will have to stay higher for longer, thanks to the surge in energy prices due to the Middle East conflict, and particularly the closure of the Strait of Hormuz. Meanwhile, the UK’s inflation data surprise in a good way. The CPI rose 2.8% year-on-year in April, below the 3% anticipated, and down from 3.3% previously. But the fall was largely attributed to the impact of an energy price cap introduced by regulator Ofgem earlier this year, and inflation is expected to rebound later this year.  

This morning, the US Dollar continued to build on gains made since early last week. The cash Dollar Index dug in above 99.00, helped by higher US Treasury yields and safe haven flows. The US and Iran have failed to restart peace negotiations following the first round in early April. The effective closure of the Strait of Hormuz continues to amplify global inflation fears. Investors are increasingly concerned that prolonged supply disruptions could trigger a broader global inflation shock. As the war approaches its three-month stage, there’s a very real danger that persistently high oil prices, along with supply disruptions to liquefied natural gas, fertilizers, helium and other vital chemicals, thanks to the effective closure of the Strait of Hormuz, are having an increasingly adverse effect on the global economy.

This, like a rabbit through a python, is taking its time to show up. But with no end in sight as far as the war with Iran is concerned, investors are starting to take precautions. Attention now shifts to the release of the Federal Reserve’s April monetary policy meeting minutes. Investors will analyse the report for any signs of a more hawkish shift in policy thinking. Although rates were left unchanged at the meeting, divisions within the committee became increasingly visible, with some officials favouring tighter policy language while another member voted for a rate cut. Meanwhile, USDJPY continues to trade either side of159.00, inching closer to 160.00 which previously triggered intervention to support the yen by Japanese authorities.

US Markets

US stock indices ended lower across the board yesterday as investors continue to reduce their exposure this week following Friday’s pullback. The Dow and S&P 500 both lost 0.7%, while the tech-heavy NASDAQ ended 0.8% lower. The small cap Russell 2000 had the worst of it though, closing down 1.0%. But there was something of a turnaround in early trade on Wednesday. US stock index futures came under further selling pressure during the Asian-Pacific session but then rebounded as European markets opened. Buyers stepped in as Treasury yields dropped back from the highs hit yesterday. This was when the yield on the 30-year bond hit 5.19% - its highest level since 2007, just before the Great Financial Crisis.

Meanwhile, the key 10-year Treasury Note got up to 4.69%, its highest level since February 2025. These moves came as the markets continue to price in raised inflation expectations because of the ongoing war between the US and Iran, and the continued closure of the Strait of Hormuz. Traders are also girding their loins ahead of chip-giant NVIDIA’s earnings release after tonight’s close. NVIDIA is the world’s largest company by market capitalisation and has been one of the main drivers of stock market gains from the lows of October 2022. So, what happens here matters. A look at options positioning ahead of the release suggests that traders are preparing for a swing of 6.5% in both directions, although there’s a slight bias towards a bullish outcome.

Meanwhile, SpaceX has set 12th June for its IPO with pricing details to come the day before. Analysts suggest that Elon Musk’s company could attract a valuation of anything between $1 and $2 trillion, enough to divert a significant amount of capital from other parts of the market. And later this evening sees the release of minutes from the Federal Reserve’s April monetary policy meeting. This was Jerome Powell’s final one as Chair and showed the FOMC more divided than at any time since 1992.

Commodities and Metals

Crude Oil - Oil prices eased on Wednesday despite continued uncertainty surrounding the Strait of Hormuz and heightened tensions between the US and Iran. This morning’s modest pullback came after President Trump insisted that the US war with Iran will end ‘very quickly’. Yet investors continue to hedge their bets with Brent and WTI front-month contracts (July in both cases) within easy reach of recent highs. There’s still plenty of uncertainty over what happens next, particularly after Mr Trump stated yesterday that the US may need to deliver another major strike against Iran if a deal is not reached soon. Meanwhile, the Strait of Hormuz remains closed to most shipping, and controlled by Iran. The route remains critical for global energy flows, accounting for nearly 20% of worldwide oil transportation.

Gold and Silver - Gold fell sharply yesterday, dropping to $4,453 at one stage, its lowest level since late March. While geopolitical tensions remain elevated, thanks to the ongoing war between the US and Iran, investors have repeatedly spurned gold as a ‘go to’ safe-haven asset, preferring to push funds into the US dollar instead. This means that gold and the dollar have a close inverted correlation, something which happens from time to time. Investors have been buying the dollar as bond yields have risen on inflation expectations which many believe will turn the Federal Reserve outright hawkish. This, in turn, reduces demand for non-yielding assets, such as gold and silver. Yesterday, President Trump warned that the US may need to strike Iran again if negotiations fail, while Iran continued issuing threats in response. The closure of the Strait of Hormuz has kept oil prices elevated and inflation fears firmly intact.

Silver was also very weak yesterday, coming within a dozen cents of $73 per ounce. As with gold, rising bond yields on inflation concerns reduced investor appetite for silver. Inflation expectations are becoming embedded now as the US/Iran war approaches the end of its third month. Elevated energy prices, and a shortage of fertilizers and other chemicals, are feeding through to global inflation trends and then to monetary policy decisions. Rising inflation expectations have significantly altered interest rate forecasts. According to the latest data from the CME’s FedWatch Tool, there’s a 40% chance that the Federal Reserve could raise rates by at least 25 basis points by the end of this year. Higher yields and tighter monetary policy expectations continue to weigh heavily on gold and silver.