Global bond yields hovered near multi-decade highs and equity indexes slipped on Friday as escalating Middle East conflicts pushed oil prices toward critical thresholds, stoking fresh inflation fears and forcing traders to reprice expectations for central bank interest rate hikes across major economies.
Middle East Conflict Pressures Oil Supply Arteries
The energy market faces its most severe test since the onset of the conflict, as violence threatens critical maritime shipping lanes. Attacks by Iran-aligned Houthis on Saudi tankers in the Red Sea risk choking off a second crucial Middle East artery for global oil supplies, running parallel to Iran’s near-closure of the Strait of Hormuz.
President Donald Trump threatened major military punishment
for Iran and its allies, while the U.S. military conducted its 13th consecutive night of attacks targeting Iranian infrastructure. Brent crude slipped 3% to $97.69 a barrel, following an overnight surge that hit a two-month high of $102.
Insurance constraints have compounded the shipping crisis. Lloyd’s Market Association questioned whether ships exiting the Strait of Hormuz could secure future policies after Iran announced plans to re-impose tolls of $1 to $2 per barrel, which would violate U.S. sanctions and risk voiding an entire vessel’s insurance coverage.
Helima Croft, head of global strategy at RBC Capital Markets, stated that the conflict has entered a more dangerous phase and could change the perspective of those who believe the market always finds a workaround.
Bond Markets Signal Renewed Inflation Anxiety
Rising energy costs have rattled fixed-income markets globally. Benchmark 10-year U.S. In Europe, German 10-year Bund yields remained close to their highest levels since 2011.
The inflation outlook worsened further following news that the U.S. administration intends to impose higher tariffs on goods from 60 trading partners. Consequently, futures pricing indicates a one-in-three chance that the Federal Reserve will raise borrowing costs as soon as next week, representing a dramatic shift from sentiment just a week prior.
The dollar has been going up for a few days so clearly the risk has been building and the fact that oil has been at these higher levels for several days has really started to work through the cross-asset correlation,
noted Shaniel Ramjee, co-head of multi-asset investment at Pictet Asset Management.
Global Equities and Tech Stocks Face Headwinds
Global stock indexes absorbed the pressure. European benchmarks showed modest recovery, as the pan-European STOXX 600 edged up 0.3% following a sharp drop in the prior session.
Technology shares remained under intense scrutiny after Alphabet and Tesla reported quarterly earnings that highlighted heavy capital expenditures on artificial intelligence infrastructure without immediate proof of financial return. Chipmaker Intel offered a brief bright spot, climbing nearly 4% in premarket trading on strong results.
Currency Volatility and Japanese Pension Strategy
Foreign exchange markets reflected mounting safe-haven demand for the greenback, driving the dollar index toward its largest weekly gain in a month. Meanwhile, the Japanese yen languished near 40-year lows at 163.77 per dollar.
