By Wayne Cole and Stefano Rebaudo
July 13 (Reuters) – Global stocks fell and government bond yields rose on Monday as investors grappled with concerns over a fresh escalation in the Middle East conflict and valuations in AI-related stocks.
U.S. and Iranian forces renewed exchanges of heavy missile and drone assaults, with Tehran saying it had again closed the vital Strait of Hormuz.
The dollar rose with bond yields as investors increased the odds of a hike in interest rates from the Federal Reserve and other central banks, just a day before Chair Kevin Warsh is due to face Congress for the first time in his new role.
Brent crude climbed 3.8% to $78.86 a barrel, up from the recent trough of $70.14, while U.S. crude added 4.11% to $74.36 a barrel. [O/R]
U.S. officials said about 20 vessels had been escorted through the strait in the previous 24 hours, though ship tracking sites showed little traffic moving.
“Short term, we still remain optimistic that we could have a fudge or a patch that would enable oil to flow through and put a lid on oil prices. (U.S. President Donald) Trump is constrained due to mid-term elections and the prospects of losing the Senate, as well as the House,” said Mohit Kumar, an economist at Jefferies.
“He (Trump) would be much more amenable to some version of a deal before mid-terms to keep oil prices in check,” he added.
US INFLATION DUE ON TUESDAY
Inflation figures for June on Tuesday could show some cooling in the headline rate of 4.2% as gasoline prices decline, though some of that will reverse now that oil is rising anew.
MSCI’s main world stocks index <.MIWD00000PUS> fell 0.38%. Europe’s STOXX 600 .STOXX was down 0.12%, with tech stocks falling 1.1%.
Nasdaq futures dropped 1.20% and S&P 500 futures were down 0.40%. Japan’s Nikkei <.N225> fell 1.9%.
South Korea’s formerly red-hot KOSPI sank 7.6%, having already lost almost 8% last week, as leveraged bets on semiconductor shares came under pressure. The market has emerged as a key global barometer for chip-sector sentiment and further losses could ripple out more broadly.
South Korean chipmaker SK Hynix’s U.S.-listed shares jumped almost 14% in their Nasdaq debut on Friday.
Chip giant Taiwan Semiconductor Manufacturing Co. reports results on Thursday and another record profit is expected.
“All eyes on the AI capex trajectory: rising concerns around the sustainability of the AI capex boom appear to have been the main catalyst for the momentum wobble,” BofA said, adding that the bank remained positioned for a continued momentum reversal.
EARNINGS IN FOCUS
For equity investors, a lot is now riding on the coming earnings season. The major banks kick off from Tuesday, while Netflix and General Electric are also on the docket.
“Tech continues to screen highly in our models, supported by stand out earnings growth/momentum and attractive valuations,” analysts at Citi wrote in a note.
“While AI volatility may remain elevated over the coming quarter, we maintain our Overweight stance on global IT and the U.S.,” they added. “We pair these growth exposures with over weights in cyclical regions/sectors, including Japan, financials and materials.”
EURO/DOLLAR HOLDS ITS GROUND
The spike in oil pushed 2-year Treasury yields to their highest since February 2025 at 4.2393%, while Fed fund futures implied 39 basis points of policy tightening by the end of the year.
The dollar index was up 0.05% at 101.13, with the euro rising 0.05% to $1.1394.
The greenback added 0.24% on the yen to 162.12, regaining some of the ground lost on Friday when Japanese Finance Minister Satsuki Katayama floated an idea to encourage the $1.8 trillion Government Pension Investment Fund (GPIF) and other retirement vehicles to bring some of their money home.
“The GPIF currently allocates 50/50 between domestic and offshore and a move back even to the pre-pandemic norm closer to 60/40 would come with a large JPY buying flow,” said Taylor Nugent, a senior economist at NAB.
“It is worth noting though that while allocations can theoretically be reviewed any time, they tend to be slow moving, and the FY26 investment plan is already in place.”
The pound eased 0.14% to $1.3379 ahead of a pivotal week in British politics as Andy Burnham is expected to be formally anointed as Labour leader on Friday and named as prime minister on July 20.
In commodity markets, the rise in yields weighed on non-interest bearing gold, which slipped 1.5% to about $4,060 an ounce. [GOL/]
(Reporting by Wayne Cole and Stefano Rebaudo; Editing by Shri Navaratnam, Kevin Buckland and Helen Popper)
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