Global markets moved into a defensive stance on Friday after a steep decline in South Korean equities triggered widespread weakness in technology shares, while oil prices rallied amid escalating concerns over the Strait of Hormuz and tensions involving Iran.
Strategists at Deutsche Bank said in a morning briefing that “Markets have lost momentum after President Trump said the US doesn’t need the Strait of Hormuz open ‘at all’.”
Bond yields rose worldwide as inflation worries resurfaced and demand for recent U.S. Treasury auctions disappointed investors. Markets also continued digesting the outcome of the Beijing summit between Donald Trump and Xi Jinping.
Attention later in the session is expected to turn toward U.S. industrial production data and the latest Empire State manufacturing survey.
Semiconductor Shares Lead Market Declines
Asian markets posted sharp losses led by South Korea, where the KOSPI tumbled 6.1% after briefly trading above 8,000 earlier in the day. Investors used the move to lock in gains on semiconductor stocks following their powerful rally in recent months.
Samsung Electronics slid 8.6% and SK Hynix dropped 7.7%, while U.S.-listed Micron Technology (NASDAQ:MU) declined 2.2% in premarket activity.
Chinese mainland shares performed somewhat better than regional peers despite broader weakness across Asia.
Stocks Retreat Across the Globe
U.S. futures followed Asian markets lower, with contracts tied to the S&P 500 down 0.8% and Nasdaq-100 futures falling 1.1%.
European equities also came under pressure, with the DAX losing 1.2%, while both the FTSE 100 and CAC 40 declined about 1%.
Investors appeared increasingly cautious after weeks of strong equity gains, while geopolitical uncertainty and higher borrowing costs continued to pressure valuations. Political tensions in Britain also drew attention as Keir Starmer faced renewed scrutiny following a parliamentary vacancy that could open the way for Andy Burnham to enter Parliament.
Oil Prices Surge Amid Hormuz Concerns
Oil markets extended their rally on Friday, with Brent crude futures rising 2.9% to $108.75 and U.S. crude gaining 3.2% to $104.42. The market remained on course for strong weekly gains as traders monitored developments around the Strait of Hormuz and the stalled diplomatic situation involving Iran.
Trump’s latest remarks that he was “losing patience” with Iran added to fears that energy exports through the Gulf could face prolonged disruption.
“Notwithstanding the current prognosis of horrifically low oil inventories, it appears that the focus is progressively shifting towards demand destruction, hence the reluctance to revisit the March or April summits. Of course, such a jump cannot be ruled out in the event of an escalation,” said Tamas Varga from PVM Oil Associates.
Trump and Xi Strike a Softer Tone
Trump left Beijing aboard Air Force One after lengthy discussions with Xi on Thursday. Although the summit failed to produce major policy breakthroughs, investors welcomed the more conciliatory tone between the two sides.
“We didn’t think any of the headlines from Trump’s trip were narrative-shifting at all,” wrote Adam Crisafulli.
Trump reiterated that both Washington and Beijing wanted the Iran conflict resolved and stressed that Tehran should not obtain nuclear weapons. He also referred to “fantastic trade deals,” though no further details were announced. Chinese officials said the summit resulted in “a series of new common understandings.”
Markets were additionally encouraged by signs that trade tensions between the two powers could continue easing. Trump said bilateral ties would be “better than ever,” while Chinese media reported Xi telling U.S. business leaders that China’s “doors to the outside world will open wider and wider.”
Bond Markets Sell Off
Government bonds weakened globally, driving yields higher as traders reassessed inflation expectations and central bank policy outlooks.
According to Deutsche Bank strategists, “the U.S. rates mood also wasn’t helped by lukewarm demand for the latest T-bill auctions as the Treasury increased auction sizes for the past couple of weeks.”
The U.S. two-year Treasury yield moved above 4.05%, while the 10-year Treasury yield neared 4.52%. In Japan, the 20-year government bond yield reached its highest point since 1996 after stronger producer price data reinforced expectations for further tightening by the Bank of Japan. European bond futures also declined.
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