Global financial markets face heightened volatility, driven by escalating US-Iran tensions impacting the energy sector. The US administration’s declaration of potential tolls through the Strait of Hormuz prompted a sharp oil market repricing. Brent crude, the international benchmark, surged 9.6 per cent, its largest increase since May 2020. This pushed refined product prices, like petrol and diesel, to levels usually seen with crude near $US100 a barrel. The “3-2-1 crack spread,” a key refinery profitability measure, hit a record high of about $US60 a barrel, further strained by Russia’s diesel export ban and limited refinery capacity.
Rising oil prices quickly impacted bond markets, pushing the 10-year US Treasury yield above 4.6 per cent. Federal Reserve Governor Christopher Waller’s remarks, suggesting a rate hike should remain an option if inflation persists, heightened speculation, with traders now seeing a 42 per cent chance of a Fed hike this month. Concurrently, debt markets are struggling to absorb a massive wave of bond sales from major technology companies. Hyperscalers, including SpaceX, Alphabet, and Nvidia, have issued around $US244 billion in bonds this year to fund AI investments, a substantial increase from $US108 billion last year, leading to underperformance in tech institutional-grade credit.
The AI investment trend, previously boosting chip stocks, now shows fragility. In Korea, leading memory maker SK Hynix experienced a sharp decline of over 16 per cent, prompting a temporary trading halt. This sell-off, driven by profit-taking and market leverage concerns, triggered a broader downturn among US semiconductor names, including SanDisk and Intel. Elon Musk’s SpaceX, after an initial post-IPO surge, dipped to $US136.98, nearing its issue price, causing investor nervousness. These converging factors suggest an end to market complacency over stable rates, economic growth, and AI investment, signalling fresh challenges.
