Exante’s latest global macro update highlights a dramatic week in financial markets, as the spreading conflict in the Middle East sent oil prices soaring and raised fresh concerns about inflation and global economic stability.
The most striking development came on Wednesday when the US downed an Iranian submarine off the coast of Sri Lanka — the first time since 1945 that a US submarine has used a torpedo to sink an enemy combatant vessel, according to General Dan Caine, chair of the US joint chiefs of staff.
The immediate market impact was sharp. Brent crude settled at $82.60 per barrel, while US WTI crude closed at $74.66 — its highest level since June for the second consecutive day, having surged approximately 11% in the two prior sessions. Over the past seven days, WTI climbed 14.28% and Brent 15.15%, with the Strait of Hormuz closed to shipping for a fifth day, cutting off critical oil and gas flows to Europe and Asia.
Equity markets offered a mixed picture. On Wednesday, stocks rallied after reports that Iran had signalled a willingness to negotiate, with the Nasdaq Composite gaining 1.29%, the Dow Jones rising 0.49%, and the S&P 500 adding 0.78%, Exante said. However, the broader weekly picture remained negative, with the S&P 500 down 1.10% over the past seven days and European indices faring worse — the pan-European Stoxx 600 falling 3.28% over the same period.
In the US, economic data remained broadly resilient. The Institute for Supply Management’s services index climbed to 56.1 in February, well above the 53.5 consensus and the highest headline reading since August 2022, Exante noted. Private payroll data from ADP also beat expectations, with 63,000 jobs added versus a forecast of 50,000, the strongest figure since July.
Despite these positives, the inflationary implications of elevated energy prices are beginning to weigh on rate expectations. The probability of a Federal Reserve rate cut at the June meeting has dropped to just 35.5%, according to CME Group’s FedWatch Tool.
In Europe, the energy price shock is complicating the ECB’s path. Money markets are now pricing in roughly a 30% chance of a rate hike by year-end.
For more insights, read the full report here.
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