Geopolitics and Inflation Drive Markets as Oil Prices Remain a Concern

Geopolitical tensions and inflation concerns are dominating markets globally, with oil prices remaining a major concern for investors. The Strait of Hormuz remains a significant source of risk, despite growing volumes of oil being shipped through 'dark transits'. Supplies may gradually return to normal during the winter, potentially leading to lower oil prices.

The US economy is showing resilience, driven by investment linked to artificial intelligence and supported by strong exports. However, inflation remains above the Federal Reserve's target, with a meaningful easing in price pressures unlikely until spring 2027. The Fed has raised interest rates by 25 basis points in September, with one more increase likely before the end of 2026.

The euro area economy is holding up better than expected, but energy costs are keeping inflation just below 3% this year and next. The European Central Bank may raise its deposit rate to 2.75% in December, then leave it unchanged until the end of 2027.