Stocks mostly drop as Middle East hopes dim, interest rates rise

On Tuesday, stock markets experienced a general decline as hopes for a resolution to the Middle East conflict dwindled and interest rates began to rise. The tech-focused Nasdaq suffered the steepest decline, falling approximately 1.3% as Nvidia dropped over 2% and Intel plummeted around 7%. This downturn followed the expiration of a US-Iran truce without achieving progress towards reopening the Strait of Hormuz, which heightened concerns about increasing energy prices and potential inflation.

Government bond yields surged to their highest levels in nearly two decades, further dampening the outlook for stocks. Despite soft US data suggesting the Federal Reserve may not raise interest rates soon, traders still anticipate inflation to remain above central bank targets due to the ongoing Middle East crisis and crude oil prices hovering around US$90 a barrel.

In the United States, the 10-year Treasuries yield exceeded 4.7%, a level not witnessed since June 2007, preceding the onset of the global financial crisis. This rise in bond yields presents challenges for both American borrowers and tech companies heavily investing in AI. Neil Wilson, an investor strategist from Saxo UK, emphasized that a significant portion of the issue in the near term stems from oil and energy prices.

European markets also faced challenges, with France witnessing its highest 10-year government bond yield since 2008 due to a surge in borrowing costs. New York's three main indices slipped for a third consecutive day, with the tech-heavy Nasdaq bearing the brunt of the decline. In contrast, London's index gained slightly, supported by higher oil prices. BP shares rose nearly 3%, while Shell increased by almost 2%.

The chances of a breakthrough in US-Iran negotiations appeared slim, as US President Donald Trump announced he would not extend the 60-day truce. Iran dismissed the agreement as irrelevant, citing the US violation of it. Despite Jared Kushner's prior claims of positive discussions between the two nations, Trump's administration maintained that no such talks were taking place. The naval blockade imposed by Washington remains active, further straining diplomatic relations between the two adversaries.

Global markets followed the downward trend after Wall Street's losses on Monday. Tokyo's stocks fell over 2%, while Seoul and Taipei dropped over 1%. Hong Kong and Shanghai saw a slight improvement, with gains.