Global markets slip as Iran conflict pushes oil prices higher
Synopsis
Global markets declined and the dollar strengthened as rising oil prices linked to the Iran conflict heightened inflation worries and reduced expectations for interest rate cuts.
Global stock markets fell on Friday while the US dollar strengthened as rising oil prices linked to the conflict involving Iran heightened concerns about inflation and interest rates. Investors assessed the potential impact of energy supply disruptions on global growth and central bank policy.
Key highlights
- Global stocks fall as oil prices surge above $100 per barrel
- Dollar strengthens for a second straight week amid safe-haven demand
- Iran conflict raises concerns over energy supply disruptions
- Markets now expect fewer Fed rate cuts this year
- Investors await major central bank meetings next week
Global stocks decline amid oil-driven uncertainty
Major global equity markets closed lower as investors reacted to continued volatility in energy markets.
In the United States, all three major indexes ended the session and the week in negative territory.
The Dow Jones Industrial Average fell 0.25%, the S&P 500 declined 0.6%, and the Nasdaq Composite dropped 0.9%.
European stocks also weakened, with the STOXX 600 index falling 0.5%. Meanwhile, MSCI’s global stock index dropped 0.9%, reflecting broad market caution.
Dollar strengthens as investors seek safety
The US dollar strengthened for a second consecutive week, rising 0.8% against a basket of currencies as investors sought safe-haven assets during the geopolitical turmoil.
Other currencies came under pressure as a result.
The euro fell 0.8% to $1.1417, while the Japanese yen weakened to 159.66 per dollar, its lowest level since July 2024.
Japanese authorities warned they were prepared to take action to prevent excessive currency depreciation, though analysts said intervention may be less effective in the face of strong dollar demand.
Oil surge drives market volatility
Energy prices remained the key driver of market movements.
West Texas Intermediate (WTI) crude futures settled 3.11% higher at $98.71 per barrel, while Brent crude rose 2.67% to $103.14, marking its first close above $100 per barrel since August 2022.
The rise in oil prices came despite efforts to ease supply concerns.
US President Donald Trump issued a partial 30-day waiver allowing purchases of sanctioned Russian oil, while reports indicated that an Indian oil tanker had successfully sailed out of the Strait of Hormuz, a vital shipping route.
Nevertheless, uncertainty over how long supply disruptions could last continued to drive volatility.
Escalating conflict fuels supply fears
Tensions escalated after Trump warned that the United States would strike Iran “very hard over the next week.”
Meanwhile, Iran has intensified attacks across the Middle East and its newly appointed Supreme Leader Mojtaba Khamenei vowed to keep the Strait of Hormuz shipping lane closed.
The strategic waterway carries roughly one-fifth of the world’s oil supply, making it one of the most critical routes for global energy markets.
Mitch Reznick, group head of fixed income at Federated Hermes, said constant geopolitical headlines were influencing markets.
“Headlines are coming at the market like water from a fire hose, which is impacting the price of oil and consequently financial markets,” he said.
Rising oil prices reshape rate expectations
The surge in energy prices has also changed expectations for central bank policy.
Investors now anticipate only about 20 basis points of interest rate cuts from the Federal Reserve this year, compared with 50 basis points expected just a month earlier.
The shift reflects concerns that higher energy prices could keep inflation elevated.
Two-year US Treasury yields, which are closely tied to interest rate expectations, recently reached a six-month high.
On Friday, the two-year yield eased slightly to 3.73%, while the 10-year Treasury yield edged up to 4.283%.
Economic data shows mixed signals
Recent economic data has presented a mixed picture for investors.
The Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, rose 0.3% month-on-month, in line with expectations.
At the same time, government data showed US economic growth slowed more sharply than initially estimated in the fourth quarter, due to downward revisions to consumer spending and business investment.
Despite these signs of economic cooling, analysts say persistent inflation risks could keep policymakers cautious.
“Despite signs of economic softening, more sticky inflation data simply strengthens the idea that the Fed will remain on the sidelines,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management.
Outlook
Investor attention will shift to a series of major central bank meetings next week, including those of the Federal Reserve, Bank of Japan, European Central Bank and Bank of England.
Most policymakers are expected to keep interest rates unchanged while monitoring the impact of rising energy prices and geopolitical tensions on inflation and global growth.
FAQs
Q1: Why did global markets fall?
Markets declined mainly due to rising oil prices and geopolitical tensions involving Iran, which raised concerns about inflation and economic stability.
Q2: How did oil prices move?
Brent crude rose above $100 per barrel for the first time since August 2022, while WTI crude approached $99 per barrel.
Q3: Why did the dollar strengthen?
The dollar gained as investors sought safe-haven assets amid geopolitical uncertainty.
Q4: What are markets expecting from central banks?
Most major central banks are expected to keep interest rates unchanged at upcoming policy meetings.
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I write about markets, money, and the macro forces that move them. Passionate about turning complex economic trends into sharp, easy-to-understand stories. Off the clock, it’s hip hop, rock, reggae -- and a mix of cricket and basketball.
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