NEW YORK/LONDON, March 3 : Stock indexes around the world lost ground while the dollar rose on Tuesday, as a widening conflict in the Middle East created safe-haven demand and pushed oil prices up sharply, exacerbating investor concerns about inflation.
Oil futures settled up more than 4 per cent after hitting their highest levels since 2024 after Iran disrupted shipping in the Strait of Hormuz, through which a fifth of the world’s oil and liquefied natural gas typically passes. The war, in its fourth day, has intensified as Israeli and U.S. forces pounded targets across Iran, prompting Iranian retaliatory strikes around the Gulf while Israel also attacked Lebanon.
On Tuesday, U.S. President Donald Trump sought to justify a broad, open-ended war on Iran saying he had “a feeling” Iran would attack after nuclear negotiations stalled. Israel’s military said it struck an Iranian compound aiming to develop “necessary capabilities” for nuclear weapons, without providing evidence.
Wall Street indexes pared earlier losses and were last down less than 1 per cent. European stocks earlier closed down more than 3 per cent and MSCI’s Asia Pacific index finished off 3.5 per cent. South Korea led declines in Asian markets with a weaker won helping to send the KOSPI down 7.2 per cent.
“How much this war is disproportionately hitting Europe and other oil-importing countries is really being highlighted right now in the markets,” said Kevin Gordon, head of macro research & strategy at Charles Schwab, New York.
In oil markets, U.S. crude settled up 4.7 per cent, or $3.33 at $74.56 a barrel after rising more than 6 per cent on Monday and Brent ended at $81.40 per barrel, up 4.71 per cent, or $3.66, on the day after a 6.7 per cent rally in the prior session.
“This damage is being done because the war keeps spreading,” said Gordon but he cautioned that the market is currently driven mostly by news headlines and that the “potential for whiplash in parts of the market is very high, because of that.”
On Wall Street, at 02:46 p.m. ET (1946 GMT) the Dow Jones Industrial Average fell 223.43 points, or 0.46 per cent, to 48,681.35, the S&P 500 fell 43.27 points, or 0.63 per cent, to 6,838.35 and the Nasdaq Composite fell 150.75 points, or 0.66 per cent, to 22,598.11.
MSCI’s gauge of stocks across the globe fell 17.14 points, or 1.62 per cent, to 1,032.81 while the pan-European STOXX 600 index finished down 3.08 per cent after hitting its lowest level since late January.
Cboe’s Volatility index, also known as Wall Street’s fear gauge, was up about 1 point at 22.40 after earlier touching 28.15, its highest level since November 20.
BONDS MUTED, DOLLAR IN DEMAND
U.S. Treasury yields moves were more muted than earlier in the day with benchmark U.S. 10-year notes yields unchanged from late Monday at 4.052 per cent.
The 30-year bond yield fell 0.2 basis points to 4.6971 per cent while the 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 0.9 basis points to 3.496 per cent, from 3.487 per cent late on Monday.
In currencies, the U.S. dollar climbed against the euro, sterling and yen as the Middle East conflict triggered broad demand for safe‑haven assets and fuelled expectations of prolonged global inflation.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.47 per cent to 98.98, with the euro down 0.57 per cent at $1.1619.
Against the Japanese yen, the dollar strengthened 0.15 per cent to 157.58 while sterling weakened 0.33 per cent to $1.3361.
In cryptocurrencies, bitcoin fell 1.03 per cent to $68,716.79.
GOLD LOSES SOME SHINE
The surge in energy prices also complicates the Federal Reserve’s efforts to keep inflation under control, with policymakers already showing signs of division around the impact of artificial intelligence on the U.S. economy. The U.S. will take action to mitigate rising energy prices due to the spike in the price of oil, Secretary of State Marco Rubio said on Monday.
Oil inflation concerns came as ISM manufacturing data released on Monday showed U.S. activity grew steadily in February, but a gauge of factory gate prices raced to a near 3-1/2-year high amid tariffs, already highlighting upside pressure on inflation even before the attacks on Iran.
In precious metals, gold prices were weighed down by a stronger dollar and fading prospects of an interest rate cut as inflation concerns intensified.
Spot gold fell 3.79 per cent to $5,125.00 an ounce. U.S. gold futures fell 3.63 per cent to $5,102.00 an ounce. Spot silver fell 6.3 per cent to $83.80 an ounce.
