DAX Forecast Clouded by Rising Oil Prices and Middle East Uncertainty

The German DAX index has so far shown little reaction to the sharp rise in oil prices, but its forecast is becoming increasingly uncertain due to the ongoing situation with Iran and the Strait of Hormuz.

Crude oil prices have surged over the past few days as hopes of a US-Iran agreement that would fully reopen the strait have faded, and the latest rhetoric from both sides suggests that any agreement could still be some way off.

The risks for oil prices appear increasingly skewed to the upside, particularly given the already tight supply backdrop and the sharp drawdown in US crude inventories, which have fallen to their lowest level in more than four decades.

While equity markets seem willing to look through the rise in crude oil prices, a renewed sell-off in bonds driven by rising oil prices and inflation fears could provide the next catalyst for a correction in stocks.