US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Global Markets Tumble as US-Iran Tensions Escalate

A renewed surge in oil prices sent global stocks plummeting, with bond yields rising as investors grew concerned that escalating hostilities between the US and Iran will hinder prospects for a peace deal. This, in turn, fueled inflation risks due to elevated energy costs.

The S&P 500 snapped its nine-day winning streak as equities fell from a record high. The price of West Texas Intermediate crude settled near $96, while a key ETF tracking software firms sank over 4%. The losses in Treasuries were fueled by rising oil prices and signs of labor-market strength, adding to bets that the Federal Reserve's next rate move will be a hike. Bitcoin extended its selloff as investors sought safe-haven assets.

The US and Iran clashed overnight, with Kuwait and Bahrain caught in the crossfire of one of the most serious flare-ups since a ceasefire went into effect in early April. This development follows days of rising tension, including Israeli operations against Hezbollah in Lebanon, which threatens to derail US-Iran talks. The sides have agreed on a rough framework that should extend their truce and reopen the Strait of Hormuz, although negotiations over the final details are dragging on.

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The ongoing tensions in the Middle East have continued to cloud the broader risk backdrop, raising questions about the durability of the ceasefire arrangement. Despite this, data showed services activity picked up in May, with a gauge of new orders increasing, underscoring resilient consumer demand.

In the run-up to Friday's payrolls report, data showed companies added the most jobs since January 2025, signaling that the labor market may be gaining momentum despite higher energy costs. If confirmed in official government figures, this trend could support a shift toward bets that the Fed is more likely to raise rates in the months ahead.

Employment remained stable in recent weeks as inflation continued to rise across much of the country, driven primarily by the impact of war in the Middle East on energy prices, the Fed said. Overall economic activity increased at a slight to moderate pace in 10 of 12 Fed districts, according to the US central bank's Beige Book.

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Note: The pace of economic activity is based on the US central bank's Beige Book.