A renewed round of US strikes on Iran, Tehran’s retaliation against American assets in the Gulf, and a new US plan to reinstate a blockade on Iranian shipping through the Strait of Hormuz combined to unsettle equity, currency and commodity markets alike. With a critical US inflation reading and the start of second quarter bank earnings landing in the coming days, investors have plenty to digest.
Wall Street retreats as Middle East tensions intensify
US equities closed sharply lower on Monday as the conflict between the United States and Iran entered a more dangerous phase. The Nasdaq Composite bore the brunt of the selling, dropping 1.6 percent. The S&P 500 gave up 0.8 percent, while the Dow Jones Industrial Average slipped 0.3 percent.
The catalyst was President Trump announcing that the US would reinstate a blockade on Iranian shipping through the Strait of Hormuz. The standoff has reignited fears that an energy shock could feed back into inflation and delay any easing in US monetary policy. Brent crude surged nearly 10 percent above US$83 per barrel, Treasury yields moved higher, and the CBOE Volatility Index, Wall Street’s fear gauge, jumped 14 percent.
Sector performance told its own story. Energy names rallied hard on the back of the oil spike, while defensive sectors such as utilities and consumer staples also drew buyers. Technology was the clear laggard, with chipmakers leading losses as investors reassessed how much further capital spending on artificial intelligence infrastructure can realistically run.
Asian and European markets track the global risk off mood
Asian markets edge lower
South Korea’s KOSPI led the region’s declines. Japan’s Nikkei 225 fell. Chinese markets were mixed despite unexpectedly strong trade figures, while Australia’s ASX 200 and Singapore’s Straits Times Index closed lower, as oil prices rose to near one-month highs, fuelling inflation concerns and dampening risk appetite ahead of US inflation data.
US futures and European equities slip as bond yields climb
US equity futures edged lower as escalating US-Iran tensions over the Strait of Hormuz and rising oil prices weighed on sentiment ahead of key second-quarter earnings and June inflation data. Investors were closely watching major bank results and the CPI report for clues on interest rates, following hawkish Federal Reserve commentary and Monday’s technology-led market sell-off.
European benchmarks ended marginally lower as escalating Middle East tensions and higher energy prices weighed on sentiment. Banking names including Santander and Deutsche Bank came under pressure as yields moved higher, while chip-linked names ASML and Infineon tracked the broader semiconductor sell-off. On the other side of the ledger, energy majors TotalEnergies and ENI advanced as the oil rally boosted the earnings outlook for the sector.
Currencies and commodities feel the geopolitical heat
The euro slips as the dollar draws safe haven demand
The US dollar remained firm on Tuesday, supported by safe haven buying amid escalating Middle East tensions and rising expectations of higher US interest rates. Investors awaited US inflation data and Federal Reserve commentary for further policy guidance. Against this backdrop, the euro weakened modestly, with EUR/USD trading around 1.1394.
Oil extends its sharp rally on Strait of Hormuz fears
Oil prices extended Monday’s sharp rally in Asian trading. Brent crude pushed above 85 US dollars a barrel and WTI traded near 80 US dollars as escalating US-Iran tensions heightened fears of supply disruptions through the Strait of Hormuz. Renewed geopolitical risks fuelled inflation concerns, weighed on broader market sentiment and prompted investors to reassess the outlook for global interest rates.
Stocks in focus
Technology and AI chip names stay in the spotlight
- Nvidia has reportedly cut the number of authorised Asian buyers of its AI chips by more than half, tightening compliance checks to prevent exports reaching China as Washington pushes for stricter enforcement of export controls to close loopholes that have enabled Chinese firms to access advanced AI chips despite restrictions.
- Taiwan’s TSMC, the world’s largest contract chipmaker, posted record second quarter revenue of T$1.27 trillion, up 36 percent year on year, exceeding expectations on the back of relentless AI demand from clients including Nvidia and Apple; the stock has climbed 57 percent so far this year ahead of Thursday’s earnings call, where analysts are pencilling in a 58.8 percent jump in net profit.
- Global smartphone shipments fell 11 percent in the second quarter to their weakest level since 2013 as memory shortages pushed prices higher, though Apple bucked the trend with 3 percent growth and a record 20 percent market share, behind Samsung’s 24 percent, while Chinese brands suffered declines. Counterpoint expects further pressure through 2027.
Bank earnings set to open the second quarter reporting season
Tuesday brings the start of second quarter bank earnings, with JPMorgan, Bank of America, Goldman Sachs, Wells Fargo and Citigroup among those due to report, alongside Rio Tinto and BP. The results are expected to provide important signals on the outlook for inflation, interest rates and corporate profitability.
Analyst calls span optimism and caution
- JPMorgan strategists are advising clients to buy into equity weakness tied to the Iran conflict, pointing to resilient earnings momentum and improving economic data. The bank expects continued EPS growth across regions, with eurozone profits recovering and US earnings remaining strong, favouring cyclical sectors such as banks and semiconductors while expecting broader market leadership beyond mega-cap stocks.
- Citi took a more cautious view on the UK, downgrading its equity market to underweight on the view that its defensive, commodity heavy composition looks less attractive relative to markets with stronger earnings growth, despite cheap valuations and expected FTSE 100 earnings growth, even as it kept a preference for UK banks, resources and healthcare names, while upgrading Japan and maintaining US exposure.
- Citi separately raised its Apple price target to 365 US dollars while maintaining a Buy rating, citing market share gains, pricing power and stronger margins, with selective price increases, a potential foldable launch and the September iPhone cycle seen supporting sentiment; AI features may boost long-term services growth, though near-term upgrade impact remains limited.
- Bank of America reaffirmed its Buy rating on Micron, naming it its top pick in the memory space, arguing the market still underestimates the structural shift AI demand is driving in chip pricing, though pricing pressure, competition and weaker end-market demand remain key risks.
- Jefferies upgraded Deckers Outdoor to Buy with a $130 target, citing confidence in sustainable growth, stable margins and shareholder returns, while Stifel maintained its Buy rating with a $144 target, highlighting HOKA launches and potential earnings upside; analysts believe valuation now reflects slower growth expectations, creating further upside potential.
- Benchmark initiated Disney at Buy with a $115 target, highlighting its transformation into a diversified consumer platform, with growth drivers including stronger theme parks, streaming profitability, cruise expansion and ESPN’s direct-to-consumer potential, against risks from sports rights costs and declining television revenues, but Disney’s earnings outlook improves.
- Jefferies upgraded Shopify to Buy with a $160 target, citing AI-driven commerce opportunities, stronger Q2 expectations and improving fundamentals, with AI adoption, pricing power and partner programme changes seen supporting revenue growth and margin expansion; Shopify’s role in agentic commerce could drive further GMV gains and strengthen its long-term outlook.
- HSBC downgraded AstraZeneca to Hold and cut its price target to 13,750p after the Wainua Phase 3 trial missed its primary endpoint. The setback weakened the investment case, with future growth now reliant on riskier catalysts, and HSBC warned further trial failures could challenge confidence in AstraZeneca’s R&D strength and limit valuation upside.
China’s trade data offers a rare bright spot
China posted trade figures for June, with exports up 27 percent and imports up 36 percent year on year, driven largely by robust demand for AI related hardware and technology goods. The trade surplus widened to 125.6 billion US dollars, highlighting resilient external demand despite geopolitical tensions, although second-quarter economic growth is still expected to moderate.
Brussels moves to restrict children’s access to social media
In a separate development, European Commission President Ursula von der Leyen said Brussels will bring forward proposals after the summer break aimed at limiting how much access children have to social media platforms. She argued that young people need more real world experience before being exposed to algorithm driven feeds, framing the debate around the timing and manner of children’s exposure to these platforms.
What to watch next
US inflation data takes centre stage
Tuesday’s headline event is the release of the US June Consumer Price Index, with both the core and headline readings likely to shape expectations for the Federal Reserve’s next move. Several Fed officials, including Barr, Goolsbee, Cook and Bowman, are also due to speak.
A packed earnings and data calendar
China releases second quarter GDP alongside industrial production and retail sales figures. On the corporate side, investors will be watching results from JPMorgan, Bank of America, Goldman Sachs, Wells Fargo, Citigroup, Rio Tinto and BP.
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