Oil Price Surge Pushes Global Markets into Hawkish Territory

The global markets experienced another volatile week due to escalating US-Iran tensions and rising oil prices. Brent crude broke above $100 per barrel, reaching around $110 by Friday and gaining nearly 13% on the week.

The escalation in the conflict raised fears of a prolonged energy-supply shock, which can feed directly into inflation and force central banks to maintain or raise interest rates. The US wholesale inflation rate rose 0.4% month-on-month and 5.4% year-on-year, while markets increased the probability of a September Fed rate hike to around 70%.

The ECB also raised rates by 25 basis points to 2.50%, its second hike this year, as energy-driven inflation moved above 3%. The US stock indices fell sharply due to higher oil prices, Treasury yields, and Fed-hike expectations, which increased the discount rate applied to stocks.