Stocks wilt as oil forges higher; Iran ceasefire ‘on life support’

Oil gained for a third day on Tuesday ‌and the dollar rose as hopes faded for a deal to get ships moving through the Strait of Hormuz, ​while a red-hot rally in chip stocks cooled and traders waited on US inflation figures.

US President Donald Trump said ‌the month-old ceasefire with Iran was “on life ‌support” after Tehran’s response to a US plan to end the war made clear the sides were far apart.

Brent crude futures were up almost 4% to about $108 a barrel.

In Europe, the STOXX 600, which is still only 4% below late February’s record high, was ‌down 0.6%, while US stock futures for the S&P 500 and Nasdaq were down 0.4% and 0.9%, respectively.

The shine even came off the almost unstoppable KOSPI index in Seoul, which recoiled as it approached 8,000 points and dropped about 3.5%, pulling down other regional markets.

Deutsche Bank strategist Jim Reid said with US and Iran appearing no closer to resolving their negotiation deadlock, Brent crude prices were extending the previous day’s rally.

“Markets are also pricing rising chances of lasting disruption, with 6-month Brent futures up 2.54% to $89.50 a barrel yesterday,” he said.

Markets are keeping a watchful eye on Trump’s visit to China, which ​begins on Wednesday, with expectations low for either progress on Iran or on the trade front.

“Investors should not ‌expect sweeping agreements. A ‘win’ would mean no new tariffs or export controls, and perhaps small symbolic deals, such as agricultural purchases, aircraft orders, or signals on rare earths,” said Daniel Casali, chief investment strategist at Evelyn Partners.

“These may seem minor, but stability at the margin matters.” US inflation data is due later on Tuesday, with the headline consumer price index seen posting a 3.7% year-on-year increase, after a 3.3% rise a month earlier.

Any suggestion that the Federal Reserve may need to hike this year - rather ​than cut as ‌investors had expected before the war - could rattle markets.

Global bond yields have climbed, led by a selloff in gilts in response ‌to the pressure building on Prime Minister Keir Starmer, who on Tuesday defied calls to resign. He told ministers he would “get on with governing” despite a “destabilising” 48 hours of growing calls to set out a timetable for his departure after heavy losses in local elections.

UK ‌gilt yields rose sharply ‌on Tuesday. The yield on 30-year bonds hit 5.794%, its highest since 1998, according to LSEG data. Sterling was down 0.5% at $1.354, making it the worst-performing major currency against ‌the dollar.

Benchmark 10-year Treasury yields were up 2 bps at 4.43%.

In the currency market, the dollar was on the front foot, rising 0.2% against the yen to 157.525. After meeting with Japanese Finance Minister Satsuki Katayama in Tokyo, US Treasury Secretary Scott Bessent said on X that coordination with Japan was “constant and robust” in tackling ​undesirable, excessively volatile currency moves.

The euro slipped 0.31% to $1.176 and the Australian dollar fell 0.34% to $0.7226.

The Australian government rolled out its budget, which contained the biggest changes to investment taxes this century to help young people get into the housing market.

UK shares slipped on Tuesday as investors were rattled by the uncertainty surrounding Prime Minister Keir Starmer’s ‌future, while renewed concerns about the war in the Middle East exacerbated inflation ​worries.

Doubts about the domestic political situation remain even after Starmer’s impassioned ‌plea on Monday, where ‌he urged voters and Labour Party lawmakers to stick with him and avoid a leadership contest he said would only bring chaos.

Starmer has vowed to stay ‌at the helm, but his position looks fragile because more than 80 Labour lawmakers have publicly called for him to set a resignation date so the party could install a new leader in an orderly manner.

“Markets tend to dislike a lack of certainty over who runs a government,” said Neil Wilson, UK investor strategist at Saxo, noting that the “fiscal position is already fragile.” The ​blue-chip FTSE 100 index fell 0.4% as of 1152 GMT, while ‌the midcap FTSE 250 dropped 1.1%.

Long-term UK borrowing costs surged to their highest level in nearly 30 years, driven by concerns that a potential successor to Starmer might adopt a more left-wing stance and advocate for increased spending, despite Britain’s already strained finances.

“The markets are pretty nervous. People are just all scratching their heads ​and saying, ‘What ‌is he (Starmer) doing?’” said David Morrison, senior market analyst at Trade Nation.

Investors were also concerned by the lack of progress in resolving the Middle East conflict, with US President Donald Trump saying the ceasefire with ‌Iran was “on ‌life support.” Tehran rejected a US proposal to end the conflict and stuck to a list of ‌demands that Trump described as “garbage”.

Oil prices jumped, with Brent crude futures rising 3% and adding to fears of increasing financial burden on UK households.

Bank stocks fell 2.6%, dragged lower by a 5.2% decline ​in shares of Metro Bank and a 4.0% drop in Barclays.

Aerospace and defence stocks also slipped 1.9%, while the rate-sensitive real estate sector fell 2.1%.

Agencies