Morning Wrap: Will the market rebound after Thursday's sell-off❓

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• Geopolitics: Escalation in the Middle East is fuelling risk. Iran has rejected a ceasefire proposal put forward by the Iraqi Prime Minister, warning that a US strike on Tehran would lead to attacks on Tel Aviv and the closure of the Bab al-Mandeb Strait by the Houthis. US Centcom has already confirmed the 13th consecutive night of air strikes on Iranian military targets, whilst Defence Secretary Pete Hegseth has estimated the cost of a war with Iran to the US at $37.5 billion. In addition, the Houthis struck two Saudi oil tankers in the Red Sea, creating a second critical chokepoint for supply routes alongside the Strait of Hormuz.

• Trade: Trump launches a new wave of tariffs on 60 trading partners. From Friday, the Trump administration imposed tariffs of 10–12.5 per cent on 60 economies on the pretext of insufficient efforts to combat forced labour, replacing the expiring 10 per cent global tariff under Section 122. The decision has been met with criticism from trading partners – Brazil called the tariffs “arbitrary”, Australia “unjustified”, and Japan described them as “regrettable”; however, none of the countries has announced any retaliatory measures.

• US market reaction: sell-off driven by oil and technology. Wall Street closed Thursday’s session sharply lower – the Dow fell by over 500 points (around 1%), marking its fifth losing day out of six, whilst the S&P 500 and Nasdaq recorded their worst day since 23 June, losing 1.2% and 2.2% respectively. The market was weighed down by the performance of Tesla (-15%, its worst session since March 2025) and Alphabet (-7%, its biggest fall since May 2025) following an increase in their AI capital expenditure forecasts, which together wiped around $500 billion off market capitalisation. Futures are mixed on Friday – S&P 500 down 0.13 per cent, Nasdaq-100 down 0.44 per cent, Dow flat.

• Asia: a red session across the board, with trading suspended in South Korea. The Nikkei 225 fell by around 2.7–2.8 per cent, the Topix by 1 per cent, and the Kospi plunged by over 5 per cent, forcing the activation of the Korean stock exchange’s ‘sidecar’ mechanism (KOSPI and KOSDAQ), which temporarily suspended algorithmic trading. The Hang Seng lost 1.33 per cent, the CSI 300 by 1.4 per cent, and the ASX 200 by 0.95 per cent – all against a backdrop of rising oil prices, tensions in the Middle East and Trump’s new tariffs. The region’s technology sector faced further pressure from declines in SK Hynix (-3.5% after reaching its ADR conversion limit), Samsung (-4%) and SoftBank (-7.5%).

• Currencies: the yen at 40-year lows, the dollar stable. Japan’s core CPI inflation rose to 1.6% y/y in June (in line with expectations), the first increase since March, driven by rising oil prices, whilst the yen remains close to multi-year lows against the dollar (163.7–163.8). The US Treasury is pressing the BoJ for faster rate hikes, whilst Japanese Finance Minister Katayama has signalled a readiness for decisive currency intervention. On the exchange rate board, morning movements are modest: EURUSD +0.17%, GBP/USD +0.18%, USD/JPY -0.01%, USD/PLN -0.24%, EUR/PLN -0.02%.

• Commodities: oil above $90, yields on the rise. Brent crude broke through the psychological barrier of $90 per barrel for the first time since May, gaining around 4% on Thursday, before correcting slightly on Friday morning (-1.34% on the OIL contract) in response to the Houthi attack on Saudi tankers. The yield on 10-year US bonds rose to its highest level since January 2025 (4.705%), and analysts point out that the market entered the escalation ‘poorly positioned’, which amplifies the price reaction to any negative supply-side news. Gold remains stable near the $4,040 support level (-0.05 per cent), whilst silver is up 1.14 per cent

• Companies: Volkswagen cuts its forecasts, whilst Intel and Oracle deliver better-than-expected results. Volkswagen reported a fall in operating profit of nearly 10% year-on-year to €3.5bn (below the consensus estimate of €4.3bn) and, for the first time, forecast a decline in revenue of up to 3% in 2026, shortly after confirming plans to cut up to 100,000 jobs. On the other hand, Intel recorded its fastest revenue growth in 15 years (25% year-on-year, to $16.1 billion; shares up 9% after the close), whilst Oracle gained 3% after signing a 10-year software contract with the Pentagon worth up to $7 billion. SAP is up 3% in pre-market trading following a 27% year-on-year increase in its cloud backlog to €22.9 billion, despite a downward revision to its profit forecast for 2026 due to the costs of acquiring data for AI.

• Cryptocurrencies and today’s trading session. Bitcoin is up slightly (+0.85%) despite generally risk-averse sentiment in the markets. The European open looks set to be mixed – the FTSE 100 is expected to open slightly lower (-0.17%), whilst the DAX and CAC 40 are set to rise (by +0.19% and +0.22% respectively), and the key themes of the day will remain developments regarding Iran, oil prices above $100 and further market reactions to Trump’s new wave of tariffs.

Volatility currently observed in selected instruments. Source: xStation