Morning Bid: The US-Iran ceasefire is unravelling

A look at the day ahead in European and global markets from Gregor Stuart Hunter

Stocks tumbled in Asia, oil surged and the dollar gained strength as the U.S. and Iran renewed attacks on each other and air raid sirens sounded across Kuwait, in the latest sign that an end to the conflict in the Middle East and a resumption of shipping through the Strait of Hormuz remain far off.

Brent crude jumped 3.7% to $97.79 as Iran’s Islamic Revolutionary Guard Corps said it attacked a U.S. airbase and that any further U.S. attacks would trigger “a more decisive response”.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 1.8% led by South Korea’s KOSPI, which was off 2.7%. S&P 500 e-mini futures were 0.3% lower, while Nasdaq e-mini futures slipped 0.7%.

Kuwait’s army said on Thursday that its air defences were intercepting hostile missile and drone threats. The United States on Wednesday also issued new Iran-related sanctions by adding the Persian Gulf Strait Authority, a body Iran has set up to manage requests for passage through the Strait of Hormuz, to its Specially Designated Nationals list, the Treasury Department’s website showed.

Persistently high oil prices have created pronounced winners and losers in global markets since the conflict began.

The U.S. dollar index, which measures the greenback’s strength against a basket of six currencies, was 0.2% higher at 99.506 as investors sought safe haven assets, but the yield on the U.S. 10-year Treasury bond was up 5.1 basis points at 4.53% on revived fears of inflation.

Underscoring the gloom, the energy shock caused by the Middle East conflict will probably have a persistent impact on inflation even if there is a solution to the war, the European Central Bank’s chief economist, Philip Lane, said on Thursday in Tokyo.

In early European trades, pan-region futures were down 1.1%, German DAX futures slipped 0.9% and FTSE futures were 1% lower.

Key developments that could influence markets on Thursday:

Earnings: SSE PLC, CD Projekt SA, Costco, Royal Bank of Canada, Dell

Economic data: France producer prices for April

Debt auctions: Germany: 15-year and 30-year government debt; UK: 4-year, 7-year and 13-year government debt

(Reporting by Gregor Stuart Hunter; Editing by Kate Mayberry)