Ankara, Turkey – Global financial markets experienced significant volatility on Wednesday after US President Donald Trump declared the memorandum of understanding (MoU) with Iran, aimed at resolving the Gulf conflict, to be “over.” This announcement, made in Ankara ahead of a NATO summit, triggered a sharp sell-off in risk assets and a surge in oil prices.
President Trump’s remarks underscored a hardening stance against Tehran, stating, “As far as I’m concerned, it’s just a waste of time dealing with them.” This declaration followed a period of heightened tensions, including recent exchanges of attacks between US and Iranian forces in the Gulf region.
Oil Market Volatility
Brent crude futures reacted sharply to the news, leaping by 5% to $78 a barrel, marking the largest single-day increase since late May. While this figure remained below the $120 peaks observed during the most intense periods of conflict, the sudden rise introduced renewed inflation concerns into the bond market. Analysts noted that months of sustained conflict have significantly depleted global oil inventories, exacerbating the market’s vulnerability to supply shocks.
Chris Beauchamp, Chief Market Strategist at IG, commented on the market’s reaction, stating, “It’s clearly not what the market’s wanted and it really weighs heavily on sentiment.”
Further compounding supply concerns, data released this week revealed that crude stocks in the US Strategic Petroleum Reserve have fallen to their lowest levels since 1983. This depletion leaves markets particularly susceptible to future disruptions in oil supply.
Khoon Goh, Head of Asia Research at ANZ in Singapore, highlighted a critical factor: “The main thing is really whether or not the Strait of Hormuz remains open and we still see traffic (and) whether or not oil can continue to flow.”
Global Stock Market Decline
European equities experienced a significant downturn, with shares dropping 1.6%, putting the STOXX 600 on track for its largest one-day decline since mid-March. US futures also saw declines, falling between 0.8% and 1.2%. The VIX volatility index, often referred to as the market’s ‘fear gauge,’ surged by nearly 13%, its most substantial one-day increase in over a month, though it remained below its March highs.
The broader stock market has been under increasing pressure in recent weeks, as investors began to scrutinize the valuations of high-performing semiconductor and AI-related stocks. This scepticism was evident in the performance of Samsung Electronics, whose shares slid for a second consecutive session despite the company reporting a nineteen-fold increase in profit. Concerns among analysts and investors cantered on a potential slowdown in memory chip demand during the latter half of the year.
Over the past fortnight, there has been a noticeable reallocation of capital away from rapidly appreciating chip stocks and into other sectors, including financials, consumer goods, and the so-called ‘hyperscalers’ that have dominated market activity over the last year.
Samsung’s financial results underscored a growing investor apprehension regarding valuations. Bottlenecks within certain segments of the AI supply chain, such as memory chips and data centres, are beginning to ease, making the future pricing of AI models more challenging to predict.
Marieke Blom, Chief Economist and Global Head of Research at ING, elaborated on this trend: “What you could see is the market looking for exactly what the pricing power will be, and that can mean that there are fluctuations in valuations.” She added, “What we also see is capex spending is — relative to Ebitda — increasing, which means that the amount of support that can be given via share buybacks and so forth is coming down. So we may see pressure on valuations in some parts of the AI chain.”
Currency Market Movements
In currency markets, the US dollar strengthened, pushing the Euro to just above $1.14. The Japanese Yen hovered around 162.4 against the dollar, nearing its 40-year lows.
Investors are also anticipating the release of the Federal Reserve’s meeting minutes later on Wednesday. Traders speculate that the new chair, Kevin Warsh, might reduce the level of detail in the minutes to mitigate any explicit policy signals, thereby managing market expectations.
