To The Moon

Fresh U.S. military strikes against Iran have sharply escalated tensions in the Middle East, sending shockwaves through global markets. On Monday, crude oil prices surged significantly, U.S. Treasury yields climbed, and Asian stock markets faced heavy selling pressure. South Korea's KOSPI index saw its losses widen to as much as 4% at one point, with SK Hynix Inc shares falling over 8% intraday, prompting the Korea Exchange to activate its Sidecar mechanism, halting programmatic sell orders for the KOSPI. Concurrently, precious metals like gold weakened broadly, while the U.S. dollar strengthened.

According to reports, U.S. Central Command announced that at 5 p.m. Eastern Time on July 12, U.S. forces initiated a new round of strikes against Iran, aiming to "further degrade its ability to attack vessels freely transiting the Strait of Hormuz." Explosions were heard in multiple locations in Iran, including Bandar Abbas and the Sirik region, in the early hours of the 13th local time. This follows prior drone and missile attacks by Iran on U.S. allies Kuwait, Jordan, and Qatar, and Iran's declaration of closing the Strait of Hormuz, though U.S. military and maritime authorities stated vessels could still transit via southern routes.

This escalation coincides with a critical juncture for markets—the onset of the U.S. earnings season, with Goldman Sachs Group Inc and JPMorgan Chase & Co set to report results on Tuesday, and inflation data also scheduled for release this week. Market concerns have clearly intensified that rising energy prices could further fuel inflation.

Oil Surges, Stoking Inflation and Rate Hike Fears

Uncertainty surrounding the Strait of Hormuz directly fueled the oil price rally. Brent crude rose over 3% to $78.50 per barrel; WTI crude futures jumped 4.2% to $74.40 per barrel, marking one of the largest single-day gains recently.

The oil price spike has reignited inflation worries. Oil had already posted its biggest weekly gain since mid-May in the prior week. Traders subsequently increased bets on further monetary tightening by the Federal Reserve—interest rate swaps now price in nearly 40 basis points of cumulative Fed rate hikes by December, a significant increase from around 15 basis points in early June.

The U.S. Treasury market faced simultaneous pressure. The interest-rate-sensitive 2-year Treasury yield rose 3 basis points to 4.23%, hitting its highest level since February 2025; the 10-year Treasury yield also climbed 3 basis points to 4.59%. Australian and Japanese government bond yields moved higher in tandem. A Bloomberg strategist noted that if oil prices remain strong, U.S. Treasuries could face further downward pressure, with the oil-bond-dollar dynamic likely to play out in the short term.

SK Hynix Leads Declines, South Korean Stocks Tumble, Exchange Activates Circuit Breaker

South Korean markets were among the hardest hit. The KOSPI index opened 0.9% lower and saw losses deepen throughout the session, with the intraday decline reaching 4%. Shares of SK Hynix Inc fell as much as 8.2% intraday. Subsequently, the Korea Exchange triggered its Sidecar mechanism, suspending programmatic sell orders for the KOSPI.

The sharp pullback in SK Hynix was partly attributed to profit-taking pressure following a 13% surge on its U.S.-listed ADR's debut last Friday. Korea Investment & Securities forecast that SK Hynix's second-quarter operating profit might come in 8% below market expectations, citing the company's higher revenue mix from High Bandwidth Memory (HBM) limiting average selling price increases. The firm suggested upward momentum from the New York listing was likely fully priced in, potentially leading to significant profit-taking and arbitrage unwinding, resulting in a session with a long upper shadow.

Japan's Nikkei 225 index opened 0.1% lower, with its decline later widening to 1%. The chief global strategist at Tokai Tokyo Intelligence Lab stated, "If attacks between the U.S. and Iran escalate further, it could act as a negative catalyst for markets. During periods of rising geopolitical risk, investors tend to favor sectors with strong profitability, which could mean semiconductor stocks remain relatively resilient."

Gold Weakens, Dollar Strengthens

In contrast to the move in oil, precious metals faced broad pressure. Spot gold fell 1.1% to $4,073 per ounce; silver dropped 1.8% to $58.82 per ounce; platinum and palladium also weakened.

Notably, gold has fallen more than one-fifth since the Iran conflict flared up in late February, ending a three-year bull run. A wave of heavy profit-taking pushed the gold price below $4,000 at one point, the first such occurrence since last November. The core logic for gold's weakness is that rising oil prices boost inflation expectations, thereby reinforcing expectations for interest rate hikes.

The U.S. dollar strengthened across the board. The Bloomberg Dollar Spot Index rose 0.2%, the euro fell 0.2% to $1.1397, and the yen weakened 0.2% to 162.00 per dollar. Bitcoin initially fell before recouping some losses, trading around $64,175.

Week Ahead: Inflation Data, Earnings Season, and Central Bank Moves

Markets face multiple tests this week. U.S. inflation data is due shortly, with the key question being whether persistently rising energy prices will further push up the CPI. Federal Reserve Chair Kevin Warsh is also scheduled to make his first appearance before Congress, marking his first public remarks since taking office, and markets will closely watch for his latest comments on the interest rate outlook.

Regarding the earnings season, Goldman Sachs Group Inc and JPMorgan Chase & Co will lead off with their results on Tuesday, providing the first major test of whether corporate profits can sustain the market rally driven by optimism around artificial intelligence. In Asia, markets will focus on China's second-quarter GDP growth data and the Bank of Korea's interest rate decision to assess the extent of economic drag from weak domestic demand.