From Gulf Conflict to Brent Crude: Tech Stock Crash and Market Risks

Tech stocks plummeted sharply while bond yields rose as the Gulf conflict redirected market focus toward inflationary risks. Following renewed military exchanges between U.S. and Iranian forces, Tehran's announcement of closing the critical Strait of Hormuz reignited fears over energy supply disruptions. Brent crude rose 3.0% to $78.22 a barrel, with U.S. crude gaining 2.4% to $73.75, while South Korea's KOSPI index sank 7.6% amid leveraged semiconductor bets. SK Hynix shares tumbled 9.3% in U.S. pre-market trading after a volatile debut.

AI Investment Sustainability Crisis

Concerns over AI valuation sustainability are intensifying, with Bank of America (BofA) highlighting scrutiny over the sector's capital expenditure (capex) trajectory. RBC BlueBay suggests risk assets could offer attractive entry points unless U.S. ground involvement in Iran escalates. However, Donald Trump faces pressure to stabilize oil prices ahead of mid-term elections, given electoral risks in both the Senate and House.

Fed Rate Outlook and Inflation Trajectory

The Federal Reserve's rate path remains under scrutiny ahead of Tuesday's June inflation data, which may show temporary cooling in headline rates due to declining gasoline prices. Yet rising oil prices could reverse this trend, complicating Kevin Warsh's first congressional testimony as Fed Chair. Market uncertainty over monetary policy adds to geopolitical volatility.

Markets remain uncertain whether Middle East geopolitical risks will create short-term opportunities or prolonged instability. While Trump's electoral constraints may cap oil prices, AI investment sustainability concerns signal a potential breakdown in tech equities. Beyond energy flows, economic fragility in the Eurozone could drive higher risk premia in bond markets. (Defne Aydın - Head of Geopolitical Risk and European Markets)