Trump comments fire up oil prices, jolt investors’ inflation expectations
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- Donald Trump said on Wednesday that the interim agreement with Iran to end the war "is over," reversing the narrative that had been pulling oil supply back onto the market since a June memorandum of understanding reopened the Strait of Hormuz.
- Brent crude jumped as much as 6% to a two-week high near US$78 a barrel, still well below the US$100-and-above range that prevailed for two months from mid-March before the June deal.
- Bond yields spiked globally as traders repriced rate-hike bets: Germany and Britain's 2-year yields both jumped 10 bps to near one-month highs, euro-zone one-year CPI expectations rose 14 bps to 1.992%, and markets priced 36 bps of Fed tightening and 32 bps from the Bank of England (up from 25 bps on Tuesday).
- Gold dropped 1.1% to US$4,060 an ounce despite its safe-haven reputation, trading 23% below its prewar peak as dollar strength and rate-hike bets overwhelmed war-hedge demand.
- The VIX volatility index snapped higher after sitting at prewar levels since early June, with similar jumps in bond and currency volatility gauges, while South Korean and Taiwanese equity volatility remained "stratospheric" on chip-stock exposure.
- The AI trade was already wobbling before the headline: a memory-chip ETF has fallen nearly 8% since the Nasdaq's June 1 record, while the equal-weight S&P 500 is up nearly 3% and Europe's "AI-poor" STOXX 600 has gained 4% over the same stretch.
Why it matters: Markets had been pricing in a normalization — Gulf oil returning, inflation cooling, central banks cutting — since the June Iran memorandum. Trump's single-sentence reversal forced traders to add roughly 11 bps to expected Fed tightening overnight and push 2-year European yields to near one-month highs, meaning rate-sensitive sectors and energy importers face renewed cost pressure just as the AI-driven rally was already losing breadth.
