Morning Bid: Chip euphoria vies with war weariness

A look at the day ahead in European and global markets from Stella Qiu

The U.S. bombed Iran for a second day, Iran struck U.S. bases in the Gulf and oil prices have jumped almost 10% in three days, with President Donald Trump declaring on Wednesday the interim deal with Iran and further talks to end the war were "over".

If there's one bright spot it's that, despite the danger, shipping is still transiting the Strait of Hormuz, albeit at a reduced volume.

Stock investors in Asia initially shrugged and bought the dip in chipmakers, wagering it would prove another "TACO" moment, but that did not last for long.

Japan's Nikkei is still up 1.8% to break a three-day losing streak, while South Korea's KOSPI climbed 4% before turning lower to hit a seven-week trough.

European bourses bucked the trend, with pan-region stock futures up 0.8%. Wall Street futures were flat.

The chip enthusiasm is not entirely misplaced. Demand for SK Hynix's U.S. share offering was more than seven times the available shares, while China's top memory chipmaker ChangXin Memory Technologies (CXMT) is set to begin book-building next Wednesday for its Shanghai IPO.

However, the bond market is flashing warning signs over inflation, and the rise in oil prices is much worse for Asia due to the regional dependence on energy imports.

The bond rout sent the yield on 10-year Japanese government bonds to a 30-year high of 2.885%.

The risk of a renewed energy shock led markets to ramp up wagers the Federal Reserve will have to raise interest rates this year.

Fed funds futures now imply 38 basis points of tightening this year, back to the levels a week ago. Minutes from the U.S. central bank's last meeting showed a few policymakers already wanted to raise rates last month.

Currency markets seemed little troubled, with the dollar broadly steady on the majors. It was just a shade lower on the yen at 162.48, lurking just below the recent 40-year peak of 162.84 as speculators remain wary of Japanese intervention.

Yet, the balance of risks still points to higher oil prices. Iran appears determined to assert its influence over shipping in the strait, while Washington and Gulf states insist on preserving freedom of navigation. That standoff creates the conditions for a prolonged crisis.

Stock investors are reckoning with this new reality as higher oil prices feed into inflation and risk, pushing the Fed to tighten monetary policy. New York Fed President John Williams may have something to say on rates later in the day.

Key developments that could influence markets on Thursday:

• German trade data for May

• ECB accounts of its June policy meeting

• U.S. weekly jobless claims

• New York Fed President John Williams, Dallas Fed President Lorie Logan and BoE Deputy Governor Sarah Breeden speak at an event in New York

(Editing by Jamie Freed)