Global Stocks Rally as Yen Falls and Oil Surges Amid Market Shocks
Market Overview and Key Developments
By Jamie McGeever
ORLANDO, Florida, July 21 (Reuters) – World stocks rallied sharply on Tuesday, with strong gains in semiconductor shares more than offsetting any angst about the U.S.-Iran war and rising oil prices, while the Japanese yen slumped to its lowest level against the dollar in 40 years.
In my column today, I look at the return of the “stagflation” premium in asset prices as the U.S.-Iran war re-escalates. It’s most visible in oil prices, obviously, but Treasuries and the dollar are also beginning to stir. Equities and credit remain untouched, but for how long?
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
Recommended Reading
1. U.S., Mexico resume USMCA trade talks as Trump hits Canada with new tariffs
2. EXCLUSIVE-U.S., China to hold AI talks in September, sources say
3. Burnham kicks off UK premiership with lucky breaks. Investors hope they last: Mike Dolan
4. EXCLUSIVE-JPMorgan, other U.S. banks set to help finance Japan’s $550 billion U.S. investment plan, sources say
5. London Stock Exchange to launch round-the-clock trading next year
Today’s Key Market Moves
Stock Market Performance
• STOCKS: South Korea +4%, China +5%, Japan +3%. Europe and UK +0.6%. Dow +0.7%, S&P 500 +0.9%, Nasdaq +1.3%.
Sector and Share Highlights
• SECTORS/SHARES: Nine sectors on the S&P 500 rise, two fall. Tech +2.4%, consumer staples -1%. “SOX” chip index +5%. Sandisk +14%, Micron Technology, Western Digital up ~12%, 3M +7%. MSCI -10%
Currency and Bond Markets
• FX: Dollar/yen above 163.00 for the first time in 40 years. Dollar index up 0.2%.
• BONDS: U.S. yields up 2-5 bps, curve bear flattens; 10-year gilt yield touches 2-month high 5.05%.
Commodities and Metals
• COMMODITIES/METALS: Oil +2%, Brent above $91 to highest in five weeks. Gold +2%.
Today’s Talking Points
Tariff and Trade Shocks
Emerging Oil Shock and Tariff Developments
* Tariff-ic
As well as the emerging oil shock 2.0, investors potentially have a tariff shock 2.0 to deal with too. In the last few days, the Trump administration has slapped 25% tariffs on targeted imports from Brazil, and threatened 50% levies on $20 billion worth of imports from Canada. These probably wouldn’t move the inflation or market needles much — negotiation will probably lead to some sort of agreement — but they signal President Donald Trump’s fixation with trade has not diminished.
Markets have barely reacted to these announcements — Brazil’s real has held up, while the Canadian dollar is moderately weaker — as investors have become inured to these types of announcements, and the aftershocks won’t be as devastating as the initial quake. Still, they’re a reminder that trade risks and uncertainty risks haven’t dissipated completely.
Currency Volatility: The Yen’s Decline
Factors Behind Yen Weakness
* It’s raining yen
The Japanese yen fell through 163 per dollar on Tuesday for the first time in 40 years, raising the specter of intervention from Tokyo to stem the tide. Would another round of yen-buying intervention have much impact beyond buying a few days, or perhaps weeks, of relief?
Part of the yen’s weakness is down to broad-based dollar strength, and the latest spike in oil prices. But policy credibility also appears to be an issue — the government’s spending plans and the Bank of Japan’s cautious approach to rate hikes aren’t landing with investors, and if the FX rate is any indication, talk of boosting state pension fund investment in domestic assets has fallen flat too. Testing times for Tokyo.
Big Tech Earnings and Market Sentiment
Upcoming Reports and Market Response
* Big Tech earnings
The first results in the current earnings season from the U.S. tech-focused megacaps are out on Wednesday, with Alphabet, Tesla and IBM reporting. Shares in all three have come under pressure in the last couple of months, as the AI frenzy has cooled — IBM had its biggest ever one-day price crash on July 14 after it warned it would take a big Q2 earnings hit.
Broader sentiment seems to have recovered, for now at least. After sliding more than 20% in the last few weeks, the “SOX” chip index has rebounded as much as 10% this week as bargain-hunters have returned. Will these earnings reports strengthen the “buy the dip” market tone, or revive June’s default “sell the rally” outlook?
What Could Move Markets Tomorrow?
• Japan trade (June)
• Indonesia interest rate decision
• UK inflation (June)
• U.S. Treasury sells $13 billion of 20-year notes at auction
• U.S. earnings, including Alphabet, Tesla, IBM, GE Vernova
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(Reporting by Jamie McGeever; Editing by Nia Williams)
