Global Markets Retreat as Gulf Conflict Reawakens Inflation Fears

The sudden escalation in the Gulf has disrupted the recent market calm, with Asian indices bearing the brunt of the instability. Japan’s Nikkei shed 2.2%, while South Korea’s KOSPI plummeted 7.6% as investors offloaded semiconductor holdings. This flight to safety has bolstered the U.S. dollar and pushed two-year Treasury yields to their highest levels since early 2025, signaling a hawkish shift in expectations for the Federal Reserve’s monetary policy.

Corporate earnings face a critical stress test this week, with major players including Netflix, General Electric, and Taiwan Semiconductor Manufacturing Company preparing to report. While Citi analysts maintain a bullish stance on AI-driven technology stocks, Bank of America has struck a note of caution. The bank estimates that hyperscale firms have burned through $234 billion in capital expenditure this year, a trend that may weigh on free cash flow if the macro environment continues to deteriorate.

Despite the geopolitical friction, gold has failed to act as a traditional safe haven, sliding 1.5% to $4,060 per ounce. The metal’s decline reflects the overwhelming pressure from rising bond yields, which are making non-interest-bearing assets less attractive. For now, the global financial system remains caught between the promise of artificial intelligence profits and the looming threat of an energy-driven inflation shock, with the Strait of Hormuz acting as the primary variable for upcoming volatility.