The targeting of oil tankers in the Middle East reinforced concerns that the conflict could expand. As risks to energy supplies came to the fore, risk appetite weakened in global markets.
U.S. Secretary of State Marco Rubio said Iran would face an economic cost if it continued firing on U.S. warships. Rubio said four tankers had been damaged and one had sunk, adding that economic pressure on Iran would continue.
Iran's Islamic Revolutionary Guard Corps announced that two U.S. Navy warships had been targeted with ballistic missiles in response to U.S. attacks on Iranian oil tankers.
Oil prices and bond yields rise
Following the escalation, the price of Brent crude rose above $100 a barrel for the first time in nearly two months. November Brent futures gained 3.4% the previous day to reach $101.20, and settled at $101.10 in the new trading session.
The rise in oil prices increased inflation concerns, while bond yields also moved higher. The yield on the U.S. 10-year Treasury note approached 4.86%, reaching its highest level since November 2023. The 30-year Treasury yield rose as high as 5.31%.
The U.S. Treasury Department announced that it would buy back up to $6 billion in Treasury securities with maturities of 10 to 20 years today to support liquidity in the long-term bond market. The announcement failed to limit the rise in bond yields as markets had expected a larger operation.
The increase in oil prices and bond yields made it more difficult for investors to make decisions ahead of the release of U.S. producer and consumer inflation data. The data could affect expectations for the policy steps to be taken by the Federal Reserve in the coming period.
Energy pressure on European markets
Geopolitical risks and rising energy costs weakened the optimism over artificial intelligence that had supported technology stocks since the start of the week. The S&P 500 fell 0.48%, the Nasdaq declined 0.64% and the Dow Jones lost 0.77%.
U.S. President Donald Trump argued in a speech at the Republican National Convention that they had won the war with Iran. Trump said they had entered the war to prevent Iran from possessing a nuclear weapon, adding that oil prices would fall after the war was won and that they controlled trade in the Strait of Hormuz.
European stock markets also declined. The FTSE 100 fell 1.31% in the United Kingdom, the FTSE MIB 30 dropped 0.58% in Italy, the CAC 40 declined 1.94% in France and Germany's DAX 40 fell 1.66%.
Markets priced in expectations that the European Central Bank would raise its three key interest rates by 25 basis points each, as well as the possibility of an additional increase by the end of the year. ECB President Lagarde said political and economic divisions among European countries were weakening their global influence.
The European Commission also announced a proposal to facilitate giving priority to European companies and European products in the approximately €2.6 trillion public procurement market. The euro-dollar exchange rate rose 0.1% to 1.1640.
Selling pressure on Asian stock markets
The negative outlook in the United States and Europe also spread to Asian markets. Rising energy costs increased concerns that inflation would persist, while higher bond yields created selling pressure on regional stock markets.
Japan's 10-year government bond yield remained at 2.93%. The dollar-yen exchange rate fell 0.1% to 153.4. Kazuyuki Masu, a member of the Bank of Japan, signaled support for an interest-rate hike, saying that oil prices and the weak yen were increasing inflation risks.
Near the close, the Nikkei 225 fell 0.4%, the Kospi declined 0.2%, the Hang Seng dropped 1.5% and the Shanghai Composite lost 0.4%.
Borsa Istanbul trading volume hits record
The BIST 100 index on Borsa Istanbul finished the day up 0.70% at 14,505.48 points. The index's trading volume reached 328.6 billion lira, its highest level on record.
The October contract based on the BIST 30 index on Borsa Istanbul Futures and Options Market moved sideways in the evening session compared with the regular-session close. The interest-rate decision of the Central Bank of the Republic of Türkiye is on the agenda of domestic markets.
Economists expect the policy rate to remain unchanged at 37%. The median year-end policy-rate forecast was calculated at 35%.
Dollar/Turkish lira finished the previous day at 48.4820. The exchange rate traded at 48.4940 in the interbank market during the new trading session.
Analysts are watching 14,600 and 14,700 points as resistance levels for the BIST 100 index, and 14,400 and 14,300 points as support levels. Markets will monitor Türkiye's industrial production data and interest-rate decision, as well as the ECB's interest-rate decision, U.S. producer inflation and weekly jobless claims.
