Global markets opened the day in a cautious mood after renewed hostilities in the Middle East prompted direct U.S. military action against Iranian targets. The strikes came after an Apache helicopter was downed near the Strait of Hormuz, with U.S. forces responding by targeting Iranian air defence systems, ground control stations and surveillance radar sites close to the vital shipping lane.
Investors reacted to the tit-for-tat exchanges by moving away from risk assets. Stock indices slipped and oil jumped, though Brent crude futures remained comfortably below the $100 per barrel mark. Market analysts noted the move could be temporary and suggested the episode might soon dissipate, but they also warned sentiment remained fragile.
The frail state of the April ceasefire has become a focal point for traders. Progress toward a negotiated end to the three-month conflict has been slow, leaving the truce precarious and keeping risk appetite constrained. That caution has provided support for the U.S. dollar as investors sought the relative safety of the currency.
Risk-off positioning spilled into technology shares, reigniting a global selloff in AI-related and other high-flying tech stocks as capital rotated away from this year’s leaders. South Korea’s KOSPI, which had been among the best-performing markets globally, plunged about 4% in a volatile week for the index.
With geopolitical uncertainty elevated, attention now shifts to U.S. inflation data due later on Wednesday. A Reuters survey of economists points to U.S. consumer inflation likely rising at its fastest pace in three years in May. That print is expected to be closely watched for any evidence that military tensions are influencing commodity prices and broader price pressures.
Traders have already been adjusting their expectations for Federal Reserve policy. The May inflation report could reinforce bets on tighter policy after last week’s stronger-than-expected jobs data. Market pricing currently implies a 25-basis-point hike by December, which contrasts with the two rate cuts that had been anticipated for 2026 before the recent escalation.
Key developments to watch:
- U.S. May consumer price index (CPI)
- UK May housing survey