Stocks fall, oil rallies as Middle East peace hopes fade

NEW YORK/LONDON, May 12 (Reuters) - Wall Street's main equity indexes dipped on Tuesday and the dollar rose as U.S. inflation climbed and oil gained for a third straight day as hopes faded for a Middle East peace deal to get ships moving through the Strait of Hormuz.

In April, U.S. consumer prices (CPI) rose sharply for a second straight month, resulting in the largest annual increase in inflation in nearly three years, bolstering expectations that the Federal Reserve would keep interest rates unchanged for a while.

The U.S. war on Iran has driven oil prices higher, resulting in more expensive gasoline, diesel and jet fuel, and economists expect to see second-round effects in the months ahead.

The data followed U.S. President Donald Trump's announcement on Monday that a month-old ceasefire with Iran was "on life support" after Tehran's response to a U.S. plan to end the war made clear the sides were far apart.

With that, U.S. crude settled up 4.19% at $102.18 a barrel while Brent settled at $107.77 per barrel, up 3.42% on the day.

"There's been speculation about the Iran conflict flaring back up. That's pushed oil prices higher," said Emily Roland, co-chief investment strategist at Manulife John Hancock Investments, also noting that rising Treasury yields added to pressure on stocks. "Some of that was on the back of the CPI report this morning that actually was pretty tame underneath the surface."

And while investors had been hoping for progress on the Iran conflict from a meeting between Trump and Chinese President Xi Jinping, Trump said he does not think he will need China's help to end the war.

"China has seemingly avoided involvement in the matter and is likely to retain this posture going forward. No need to drag themselves into this quagmire," wrote Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions.

MSCI's gauge of stocks across the globe fell 4.97 points, or 0.45%, to 1,103.32.

Earlier, the pan-European STOXX 600 index finished down 1.01%.

On Wall Street, the Dow Jones Industrial Average rose 56.09 points, or 0.11%, to 49,760.56, the S&P 500 fell 11.88 points, or 0.16%, to 7,400.96 and the Nasdaq Composite fell 185.92 points, or 0.71%, to 26,088.20. The PHLX semiconductor index fell 3% after hitting a record high on Tuesday.

Manulife's Roland said the decline in semiconductor stocks was affecting sentiment and pointed to a pullback in technology shares in South Korea "which have been on an absolute tear in recent weeks."

This was after presidential policy adviser Kim Yong-beom floated an idea of "citizen dividends", as he argued in a social media post that excess earnings in the era of AI should be redistributed to all citizens and that South Korea could be the first country to make that happen.

The KOSPI index in Seoul recoiled after it hit a record high just below 8,000 points, and finished 2.3% lower, pulling down other regional markets. [.KS]

RISING GLOBAL BOND YIELDS

In the bond market, U.S. Treasury yields rose on concerns about continued energy supply disruptions in the Middle East and after data showing rising U.S. consumer prices.

The yield on benchmark U.S. 10-year notes rose 4.9 basis points to 4.461%, from 4.412% late on Monday, while the 30-year bond yield rose 3.8 basis points to 5.0253%.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 4.2 basis points to 3.989%.

Rising global bond yields were led by a selloff in gilts in response to the pressure building on British Prime Minister Keir Starmer, who on Tuesday defied calls to resign.

He told ministers he would "get on with governing" despite a "destabilising" 48 hours of growing calls to set out a timetable for his departure after heavy losses in local elections.

In the UK bond market, the British 10-year gilt yield rose 0.4 basis points to 5.107% while the 2-year gilt yield fell 0.1 basis points to 4.551%.

Sterling weakened 0.54% to $1.3533, making it one of the weakest-performing major currencies on the day.

Elsewhere in currencies, the U.S. dollar advanced for a second straight session after the economic data and amid uncertainty over the durability of the U.S.-Iran ceasefire.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.35% to 98.31, with the euro down 0.38% at $1.1737.

Against the Japanese yen, the dollar strengthened 0.31% to 157.64.

Gold prices were under pressure as fading hopes for a peace deal added to concerns about inflation and the prospect of higher global interest rates.

Spot gold fell 0.43% to $4,713.93 an ounce. U.S. gold futures fell 0.4% to $4,700.00 an ounce.

(Reporting by Sinéad Carew in New York, Amanda Cooper in London, Tom Westbrook in Singapore, Jihoon Lee in Seoul; Editing by Alison Williams, Deepa Babington and Jamie Freed)

Copyright Reuters or USA Today Network via Reuters Connect.

This story was originally published May 12, 2026 at 5:17 PM.