Stock markets are down across the world again on the latest jump on oil, with major U.S. indexes finishing flat to lower on Wednesday and Asian indexes giving up some recent gains on Thursday. European and U.S. stock futures were down before the bell.
The oil market’s shrug at the record 400-million-barrel reserve release is worrying and an indication of the timeline traders are now contemplating.
The 400 million barrels - more than twice the release seen after the Ukraine invasion in 2022 - would cover about 2-4 weeks of global demand. If the war is still shutting down the Gulf after that, markets could tighten further.
With that timeline in mind, financial markets are already turning attention to potential inflation impacts and central bank responses.
A second U.S. interest rate cut has all but disappeared from the Fed futures curve, with markets now pricing in barely one for 2026. February CPI inflation numbers came in as expected, but that data is from before this oil shock.
Looking ahead, there’s a sweep of central bank decisions next week. The Reserve Bank of Australia is expected to raise interest rates again. Markets are already fully priced for a European Central Bank rate rise by July, and mortgage rates are rising again in Britain. No central bank is likely to be brave enough to cut in this environment.
Meantime, U.S. Treasury yields hit their highest in almost six months heading into Thursday. Soft debt auctions haven’t helped restore confidence this week.
And the dollar continued to firm on the dwindling rate cut expectations, holding near its strongest levels of the year so far, weighing down gold in turn.
With that, onto today’s column.
