Middle East Tensions Spark Oil Price Surge

Renewed Middle East tensions sent crude oil prices surging by nearly five percent to top $83 a barrel on Tuesday, while US equity futures dipped as investors questioned massive spending on artificial intelligence. The price jump snapped a three-day decline in global benchmark Brent, which had posted its biggest drop since April 2020 just days earlier.

The escalation of violence in the Middle East comes after several days of calm, reviving concerns over energy supplies. Treasury futures also moved lower, while the dollar strengthened against major currencies.

Technology shares remained under pressure as investors questioned whether massive spending on AI will generate returns sufficient to justify elevated valuations. Micron Technology Inc. and Sandisk Corp. were among the biggest drags on the S&P 500, while the Philadelphia Semiconductor Index fell 4.5%, putting the gauge on course for its worst month since 2002 after its strongest quarter on record.

Analysts at JPMorgan Chase & Co. said the probability of a rate hike is likely less than the roughly 30% chance currently priced, as 'inflation, while elevated, does not appear to at-risk of an upside explosion.' They assign a 50% chance to a 'hawkish hold,' as the central bank will want to stay vigilant even though recent energy prices suggest disinflation may be ahead.