Markets trade negative as Middle East tensions threaten global energy supply

Global markets traded lower on Tuesday as renewed military escalation between the US and Iran raised concerns over global energy supplies, driving oil prices higher and increasing expectations that major central banks could maintain tighter monetary policies.

Investors remained focused on US inflation data due later Tuesday amid growing concerns that higher energy prices could fuel inflation and push bond yields higher.

US President Donald Trump said the American blockade in the Strait of Hormuz has been reinstated, while a 20% transit fee will be imposed on all vessels transiting through the waterway.

The Khatam al-Anbiya Central Headquarters, the Iranian Armed Forces unit overseeing military operations, said it would not allow Washington to intervene in the Strait of Hormuz.

Iranian Foreign Ministry spokesperson Esmail Baghaei said negotiations between the US and Iran has entered a crisis period.

The UAE Defense Ministry said two UAE-owned tankers in the southern corridor of the Strait of Hormuz were targeted by Iranian cruise missiles, killing one crew member and injuring eight others.

Conflicting claims over control of the Strait of Hormuz and renewed attacks in the region heightened investor caution and damaged diplomatic efforts, increasing concerns over the possibility of a prolonged conflict.

The escalation also intensified fears of disruptions to global energy supplies through the strategic waterway, adding to inflation concerns and risk aversion in financial markets.

Investors are also monitoring the US consumer price index due later Tuesday. Federal Reserve Governor Christopher Waller said the central bank may need to tighten monetary policy further if core inflation remains elevated.

Federal Reserve Chair Kevin Warsh is scheduled to present the central bank’s monetary policy report to Congress on Tuesday.

Market participants are also awaiting earnings reports from major US banks, including Bank of America, Wells Fargo, Citigroup, Goldman Sachs, and JPMorgan.

The US Treasury Department reported a $120 billion federal budget deficit in June, lower than market expectations.