Stocks Fall While Oil Rises Due to a Souring War Outlook – Europe Market Wrap

Stocks and bonds slumped as oil soared again, with Trump crushing hopes that the Middle East war is nearing an end and that interruptions to energy exports will reduce.

S&P 500 futures fell 1.2%, mirroring a dip in European and Asian indexes. Brent rose 8% to for than $109 per barrel after Trump used a prime-time address to promise more severe action against Iran in the coming two to three weeks while offering no concrete plans to reopen the Strait of Hormuz. European diesel futures reached $200 per barrel.

Bonds fell as speculators began to place new bets on tighter monetary policy, anticipating that oil prices would remain high for an extended period. The Dollar rose to its highest level in a week, while gold broke a four-day rally.

Treasury rates climbed throughout the curve, with the two-year rate rising 5 bps to 3.85%, as traders reduced the likelihood of a 2026 Fed rate cut to around 10% from more than 20%. Money markets are already completely pricing in two quarter-point increases by the BoE and nearly three by the ECB this year.

Traders are expected to reduce their stock holdings ahead of the holiday weekend, with many markets closed for up to four days. Since the conflict began, the S&P 500 has seen cumulative gains throughout the first three days of the week, but has fallen 9% on Thursdays and Fridays.