Shares in Japan and South Korea opened lower, rebounding after a long week. Equity index futures for the S&P 500 Index and Nasdaq 100 also edged lower after the underlying gauges pared early losses to be little changed on Monday.
The dollar pared its gains on Tuesday, while West Texas Intermediate crude oil was flat after jumping 6.3% in the previous session. Natural gas prices in Europe rose as Qatar closed the world’s largest LNG export plant. The price of gold was above 5330 dollars per ounce.
Concerns that rising energy costs will raise inflation and federal reserve cuts will weigh on bonds. The 10-year Treasury yield rose 10 basis points during the U.S. session to 4.03%. Traders are now fully pricing in a US rate cut for September, with terms for a third cut in 2026 evaporating close.
“There are more questions than answers right now,” said Chris Larkin from Morgan Stanley in e*trade. “The picture of energy stability can have a positive effect, while concerns about long-term disruptions can be counterproductive.”
As US-Israeli attacks on Iran erupted across the Middle East, President Donald Trump insisted there was no set timetable, while Defense Secretary Pete Hegseth dismissed the idea of an “endless” war with Iran.
U.S. Secretary of State Marco Rubio said the U.S. military will step up its attacks against Iran and “the worst casualties yet are from the U.S. military.” The next phase will be more punishing for Iran than it is now, he added. Australian 10-year yields rose on Tuesday, as Reserve Bank Governor Michelle Bullock said the central bank was “very alert” to the potential impact on inflation expectations from the Middle East conflict and was “well-positioned” for a policy response if necessary.
The recovery of major equity indices from session lows in the United States suggests that, for now, the market sees the conflict as a relevant geopolitical risk, but one that, according to Antonio Di Giacomo at XS.com, remains immediately financial.
Morgan Stanley strategists led by Mike Wilson, conflict in the Middle East is unlikely to go away through their bullish outlook on US stocks, without a sharp and sustained increase in oil.
“Finally, Iran’s military action should remove major uncertainty in the world, and the stock market is expected to experience a relief rally as a new, pro-Western leadership emerges in Iran and crude oil exports resume.”
