Following a pick-up in the number of ships leaving the Persian Gulf via the Strait of Hormuz in recent days, the official evacuation plan, coordinated by the IMO, the UN's shipping regulator, was halted after a ship was attacked in the strait. While it remains unclear whether this was a deliberate action by Iran, the incident is likely to severely impact confidence that ships can transit safely through the strait. Indeed, a number of vessels turned around after the incident. Iran used the opportunity to reiterate that ships will not be protected by "safe passage guarantees" if they do not follow its rules.
Iran wants to impose a charge for crossing the strait and. while President Trump rejected the idea as unacceptable for the US. the latest events once again demonstrate that, ultimately. Iran has full control over what happens in the strait.
Investor anxiety about tech stock valuations was the main source of market volatility. In the US. major mega-cap stocks sold off notably, with the Magnificent Seven falling 2.5%. Semiconductor stocks, which had fallen by about 8% earlier this week, recovered almost half of that loss. However, investors looked to diversify and rotate into other sectors, with industrials and healthcare making notable gains, leaving the S&P 500 unchanged on the day.
Equities in other major markets mostly gained. Japan's Nikkei 225 stood out. rising 4.6% following PM Takaichi's announcement of long-term plans over the next fourteen years to boost economic growth through a combination of public and private investment. In Europe, equities also traded in the green, with the Euro Stoxx 50 rising almost 1.0% and the FTSE 100 gaining 0.7%. In contrast, domestic ASX 200 equities declined 0.7%.
US Treasuries traded higher, despite better-than-expected US consumer spending and income data. Gains were concentrated at the front end of the curve, where yields rose by 2bp. European Gilts and Bunds followed similar patterns.
Aussie yields followed global trends and traded higher. The 10Y eased by 3bp. while gains at the front end were a touch larger. There was little impact from significant Australian economic data releases - labour market data were broadly as expected, while the household spending indicator surprised to the upside.
In FX markets, after a six-day streak of gains, the DXY posted a 0.2% loss. The EUR and GBP were a touch stronger, gaining 0.1% and 0.2%. respectively. The yen was unchanged at 161.79, while the AUD appreciated 0.1%. trading at 0.6908.
Initially, oil prices extended the downward trend seen in recent days, but that move was quickly reversed once news of the incident in the Strait of Hormuz emerged. The August WTI contract gained 2.2% to reach $71.9. while the equivalent Brent future was up a similar amount to reach $74.8. Gold and copper rose after significant losses over the previous couple of days. Iron ore was down again, at $97.2. its lowest level since late February.