Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

Volatility coursed through world markets on Thursday as fears over a U.S. strike on Iran and threat of another U.S. government shutdown rattled oil and metals, while AI bubble fears hammered tech stocks and pushed the Nasdaq and S&P 500 into the red.

More on that below. In my column today I look at Federal Reserve Chair Jerome Powell's press conference on Wednesday, and why it was revealing for what he didn't say on Fed independence rather than what he did say on the economy.

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* Oil on a tear

The price of oil is shooting higher, propelled by renewed geopolitical risk concerns, namely U.S.-Iran tensions. Brent crude broke above $70 a barrel on Thursday for the first time since July, WTI crude is the highest since September.

Sustained high energy prices will worry policymakers. Year-on-year oil price changes have disinflationary since 2024, and at the start of this year were running at -25%. That's now -5%. With the affordability crisis likely a key issue in the U.S. mid-term elections, President Trump may also be getting twitchy. 

* Volatility fuels dislocation

Thursday's trading was marked by sharp price swings across all asset classes, with the lurches particularly extreme in commodity markets. Gold, silver and copper soared to fresh highs, but later slumped - gold and silver closed the day lower.

They seem be buckling under the weight of speculative excess that has fueled their eye-watering gains recently, particularly the precious sector. Volatility and price dislocations have spilled over into the dollar and FX this week too. Equity sentiment isn't immune. 

* Tech wreck

Is the AI bubble starting to deflate? Shares in some of the world's biggest tech firms plunged on Thursday as investors fretted whether the hundreds of billions of AI spend will yield adequate returns. Microsoft and SAP posted double-digit losses.

As analysts at Carlyle Group note, the history of transformative technology shows the AI bubble will deflate or burst. But that's part of the process, so some pain is on the way. "The bottom line is that bubbles are endemic to technological revolution."

Given the host of debates currently swirling around the Federal Reserve, Chair Jerome Powell's press conference on Wednesday was remarkable for being so decidedly unremarkable. 

After the central bank announced it was leaving interest rates on hold as expected, Powell fielded the usual run of questions on jobs, inflation and the economic outlook, indicating that the Fed is now in pause mode.

Yet what was most interesting was what he didn't say when probed on the red-hot-button issues around Fed independence - issues that threaten to undermine investors' faith in the central bank. Perhaps irrevocably.