Oil prices rose nearly 2% and US equity futures fell early Tuesday after former US President Donald Trump issued a stark warning about Tehran, disrupting earlier optimism that the Israel-Iran conflict might not escalate further.
Speaking from the G7 summit in Alberta, Trump posted on social media urging for an evacuation of the Iranian capital. His remarks contrasted with earlier comments suggesting Iran was open to negotiations.
Market Impact
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West Texas Intermediate crude: +1.9% at $73.11/barrel
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S&P 500 Futures: –0.5%
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Spot Gold: +0.5% at $3,400.49/oz
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Bitcoin: –2% to $106,641.01
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US 10-Year Treasury Yield: –2 bps to 4.43%
The spike in oil followed Friday’s attacks on Iran’s South Pars gas field and nuclear sites by Israel. However, crude infrastructure and shipping through the Strait of Hormuz remain unaffected, limiting the broader oil supply shock for now.
Asian equities reacted mixed. Japan’s Topix was flat, and South Korea’s markets showed marginal gains. Meanwhile, Australia’s benchmark declined 0.1%. European futures indicated positive sentiment, with Euro Stoxx 50 futures up 0.9%.
Geopolitical Risk Returns
Trump's comments disrupted a brief return to risk-on sentiment in global markets. The S&P 500 had closed Monday above the 6,000 mark on Wall Street, buoyed by signs of containment in the Israel-Iran skirmishes.
The Wall Street Journal and Reuters both reported that Iran is willing to negotiate, signaling through mediators including Qatar and Saudi Arabia that it may resume nuclear talks if the US remains militarily neutral.
Despite this, the region remains tense. Israeli strikes have continued, while Iran faces economic and political pressure. Trump is reportedly cutting short his G7 trip and returning to Washington.
Investor Focus
Markets are closely watching the upcoming Federal Reserve decision due Wednesday. While no immediate rate moves are expected, Chair Jerome Powell is anticipated to comment on inflation trends and the impact of rising oil prices on future policy.
“He may downplay recent inflation improvements due to fresh geopolitical risks and tariff uncertainty,” said David Doyle of Macquarie Group.
Meanwhile, Japan is expected to keep its interest rates unchanged as the Bank of Japan concludes its meeting Tuesday. Attention remains on potential revisions to its bond-buying program.
Chinese markets saw a temporary boost after strong May retail data, though analysts warn of lingering deflation and property sector weakness.
