Oil prices extended their rally on Tuesday, with Brent crude rising to just over $84 a barrel following a near 10% jump on Monday. US benchmark crude gained 1.4% to $79.20 a barrel. The escalation in fighting between the United States and Iran has raised fears over the stability of global oil supplies, particularly through the strategic Strait of Hormuz, a chokepoint for about a fifth of the world's petroleum.
Although prices remain well below the wartime peak of nearly $120 a barrel reached earlier this year, uncertainty deepened after both Washington and Tehran claimed control over the waterway. US President Donald Trump announced the reinstatement of a blockade on Iran in the strait, while the US military launched additional strikes on Iranian positions. The disruption has kept oil tankers from delivering crude from the Persian Gulf, driving up fuel costs worldwide.
For European consumers and businesses, the rise in oil prices adds another layer of inflationary pressure. The European Central Bank, like the Federal Reserve, has been grappling with elevated inflation, and more costly energy could complicate efforts to bring it down. Higher oil prices also threaten to slow economic growth across the continent, particularly in energy-importing nations such as Germany, Italy, and Spain.
Asian Markets Slide on AI Stock Sell-Off
In Asia-Pacific trading, equities fell as a sell-off in artificial-intelligence stocks weighed on sentiment. Tokyo's Nikkei 225 lost 1% to 66,574.96, while South Korea's Kospi dropped 3.2% to 6,589.37. The Shanghai Composite index declined 0.8% to 3,884.32, despite data showing Chinese exports surged 27% in June year-on-year, driven by strong demand for computer chips and AI-related technology. Hong Kong's Hang Seng edged up 0.1% to 24,230.46, and Australia's S&P/ASX 200 fell 0.5% to 8,767.00.
The downturn in Asian markets followed a weak session on Wall Street, where the S&P 500 fell 0.8%, the Dow Jones Industrial Average dropped 0.3%, and the Nasdaq composite sank 1.6%. Chip stocks led the decline, with Micron Technology falling 4.4%, paring its year-to-date gain of 243.1%. Nvidia, the largest stock on Wall Street by market capitalisation thanks to the AI boom, slid 3.5%, exerting the heaviest drag on the S&P 500.
Investor anxiety is mounting that stock valuations have become stretched, and that the anticipated profits from AI may not materialise as quickly or as substantially as hoped. This uncertainty is particularly relevant for European tech firms and funds that have heavily invested in US AI stocks.
Earnings Season in Focus
This week, much of Wall Street's attention will be on quarterly earnings reports from major US banks. On Tuesday alone, Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, and Wells Fargo are all due to release their spring results. Analysts at FactSet project that S&P 500 companies will report overall earnings growth of 23.6% from a year earlier, which would mark the second consecutive quarter of growth above 20%.
However, companies across all sectors will need to deliver strong results to justify their elevated stock prices, which remain near record levels despite recent volatility. The combination of high valuations and rising oil prices could prompt central banks, including the Federal Reserve and the European Central Bank, to maintain or even raise interest rates to curb inflation. Higher rates typically slow economic activity and depress asset prices.
In currency markets, the US dollar slipped to 162.34 Japanese yen from 162.35 yen, while the euro rose to $1.1391 from $1.1381. The euro's slight strengthening reflects ongoing uncertainty about the global economic outlook and the relative appeal of European assets.
For Europe, the situation in the Middle East carries direct implications beyond energy prices. The European Union has long sought a strategy for stabilising the region, combining cultural engagement and infrastructure investment. Meanwhile, the bloc faces its own challenges in securing energy supplies, as highlighted by the steep challenge to refill gas storage ahead of winter, with prices already rising.
As the conflict continues to disrupt global trade and financial markets, European policymakers will be watching closely for any spillover effects on the continent's economy and energy security.
