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A Reuters Open Interest newsletter

What matters in U.S. and global markets today

By Anna Szymanski, Editor-in-Charge, Reuters Open Interest

Military exchanges between the U.S. and Iran intensified overnight as President Donald Trump seemed to double down on his view that Tehran was an unreliable negotiating partner, while also indicating that a full-scale war would not be restarting. Oil markets have so far taken the flareup in stride, with Brent crude staying under $80 per barrel despite yesterday's surge to multi-week highs.

Global bonds remained weak in Asia trading, while stocks were mixed early on Thursday. A burst of enthusiasm for chip stocks in the U.S. on Wednesday helped lift Asian equities briefly before the rally lost momentum.

I’ll get into that and more below.

But first, listen to the latest episode of the Morning Bid daily podcast, where we discuss the longer-term implications of this recent burst of hostilities in the Gulf and why volatility is not necessarily a bad thing for markets.

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Today's Market Minute

Control over the Strait of Hormuz has become a "golden weapon" to Iran, for which it is willing to risk new escalations with the U.S., and is a bigger priority than a nuclear programme for which it accepted decades of sanctions.
Demand for SK Hynix's $28 billion U.S. share sale was more than seven times available shares, a person familiar with the matter said, underscoring ‌huge investor appetite for one of the most important companies in the AI supply chain.
Disputes between U.S. President Donald Trump and other NATO leaders showed the alliance's democratic strength and should serve as a lesson for Russian President ‌Vladimir Putin, NATO Secretary General Mark Rutte told Reuters on Wednesday.
Chronic instability in the Gulf may be the new normal as U.S.-Iran tensions reignite over control of the Strait of Hormuz, argues ROI Energy Columnist Ron Bousso.
TAMALES, not TACO? ROI Asia Commodities Columnist Clyde Russell coins a new acronym to explain how President Trump's policies have impacted global commodities.

Markets remain long TACO

Another round of U.S. strikes on Iranian targets came on Wednesday. Tehran retaliated by launching attacks on Kuwait, Bahrain and Qatar.

The U.S. strikes followed remarks by Trump in Turkey yesterday that he believed the two sides' interim agreement was "over" and that negotiating with Tehran was not worthwhile.

However, he also said the war likely would not restart, noting: "Anything that happens is going to be over very quickly ... and will only make it safer, including for oil".

And traders appear to put more weight on the latter message. Oil prices have been relatively calm, paring early gains to trade at around $78/bbl on Thursday morning. That's around where they settled on Wednesday after rising more than 5%.

The question now is if we do see both sides pull back from this latest eruption, how far do prices fall? If the Gulf is now in a chronically unstable situation as Tehran vies for control over the Strait of Hormuz, a higher risk premium would likely need to be reflected in crude prices.

Global bond yields continued to rise on Thursday given the renewed tensions in the Middle East and inflation fears, with Japan's benchmark 10-year government bond yield hitting a 30-year high.

In equities, chip stocks staged a bit of a comeback stateside on Wednesday. Broadcom rallied after Apple said it planned to spend more than $30 billion on the semiconductor giant's chips, helping the Nasdaq edge up slightly.

And memory chip optimism was also reflected in news that SK Hynix's $28 billion U.S. share sale was more than seven times oversubscribed. The South Korean chipmaker's shares jumped 5% in Asia, though the KOSPI ended lower once again after rallying earlier in the session.

Wall Street futures, meanwhile, were in the green before the bell on Thursday.

On the monetary policy front, Wednesday saw the release of the Fed's June meeting minutes, which showed an evenly divided debate over whether to hold or hike rates, with a "few participants" noting a potential case for immediate hikes and several pointing out that price pressures were becoming "more broad-based".

Elsewhere, NATO member states may have breathed a sigh of relief after the conclusion of the summit in Turkey, where President Trump said there had been "a lot of unity" and announced Ukraine would be granted a license to manufacture Patriot missile interceptors. That was a big win for Kyiv.

Meanwhile, Russia announced on Wednesday that it would ban diesel exports as part of its efforts to support its domestic fuel market. Systematic Ukrainian drone attacks on oil refineries have triggered gasoline shortages and ‌price spikes in one of the world's largest oil-producing nations.