Global stocks rise despite Iran tensions, oil up, yen eases

European stocks, along with US futures, witnessed a rise on Tuesday, despite the resurgence of oil prices casting doubt on the quick resolution of the US-Iran conflict through diplomacy. The yen experienced a minor dip but managed to retain most of its gains facilitated by Tokyo and Washington's joint efforts to support the currency following last week's collaborative action.

Conflicting statements from the US and Iran intensified uncertainty, with the recent assault on shipping in the Strait of Hormuz amplifying risks to global energy transportation. Brent futures LCOc1 surged by 1.4% to $84.95 a barrel, following a 7% decline in the preceding session to a three-week low. The STOXX 600 index in Europe climbed by 0.55%, with tech stocks soaring by 1.7%.

The Nasdaq futures NQcv1 and S&P 500 futures EScv1 also experienced an increase of 0.67% and 0.22%, respectively. The S&P 500 index climbed by 1.48%, nearing its record-high level of 7,620.90, while the Dow Industrials managed to set a new closing peak. MSCI's global stock index expanded by 0.05%, while Japan's Nikkei index went up by 0.32%.

Mohit Kumar, an economist at Jefferies, articulated that the strategy involved adding risk to sectors less affected by higher interest rates, with technology and financial sectors being the favored choices. The mounting cash reserves in the system were viewed as a key factor supporting the medium-term bullish outlook. US Treasury yields, which had peaked at a 19-year high the previous week due to Federal Reserve Chairman Kevin Warsh's comments hinting at a potential slowdown in rate hikes, were still on an upward trajectory.

Fed officials seemed reluctant to implement aggressive hikes, and forthcoming economic data might provide them with sufficient room to maintain the status quo. The release of the latest US jobs figures on Tuesday was anticipated. Out of the S&P 500 companies that had reported for the second quarter, 84% had surpassed earnings projections, as per LSEG data and market participants.

Eastspring Investments analysts, comprising Chief Investment Officer Vis Nayar, highlighted that the AI capital expenditure boom remained robust. However, lingering doubts were expressed in Europe, where economists cautioned that the region's economy was anticipated to face a tougher outlook compared to other regions as drought conditions impeded Rhine shipping and gas inventories continued to be strained.

The US dollar exhibited a 0.4% increase against the yen, reaching 157.80 yen, as it regained momentum after the US and Japanese authorities orchestrated coordinated intervention to bolster the yen last week. The yen's value remains approximately 4% higher against the dollar than it was a week ago, prompting official support, marking the first US intervention in the Japanese foreign exchange market in 15 years.

Market observers, though, were apprehensive about Japan's expansionist fiscal policy and the gradual pace of interest rate hikes by the Bank of Japan, which could exert downward pressure on the yen. Thierry Wizman, a global forex and rates strategist at Macquarie Group, suggested that factors such as a reduction in crude oil prices, a tightening of the Bank of Japan's policies from September onwards, and a possible moderation in Prime Minister Sanae Takaichi's fiscal plans to restore debt sustainability could contribute to the unwinding of short yen positions and further strengthen the currency.

The US dollar index, which gauges the dollar's strength relative to a basket of six currencies, was hovering close to its lowest levels of the past two months, sitting around 99.98.