Stocks around the world began the week cautiously after rising tensions in the Middle East prompted concerns about oil supply and inflation. Brent crude oil climbed 1.8% to $78.42 a barrel, and U.S. crude rose 1.9% to $75.26. While oil had reached five-month highs earlier in the session, prices soon tracked downward as investors anticipated de-escalation.
Asian equity markets declined due to uncertainty. Outside Japan, MSCI’s Asia-Pacific index fell by 1%, while China’s CSI300 dropped 0.2%. Japan’s Nikkei fell 0.6% even after data showed that manufacturing had expanded for the first time in nearly a year. S&P 500 futures were 0.3% lower, and Nasdaq futures were down 0.4%, suggesting a weak start in New York.
Energy Markets and Geopolitical Tensions
Investors are keeping a close eye on whether Iran retaliates after U.S. assaults on its nuclear facilities. Some analysts have suggested that the situation might calm down if Iran pursues diplomacy, while others caution that any response, particularly around the Strait of Hormuz, could cause global market turmoil. This strait transports approximately 25% of the world’s oil and 20% of its LNG.
“A selective targeting of the tanker traffic could mean Brent crude would touch $100 a barrel,” said Vivek Dhar, commodities analyst at Commonwealth Bank of Australia. Goldman Sachs has said crude prices could briefly touch $110 if the strait is shut for a month.
Gold prices fell 0.1% to $3,363 an ounce, as markets had not yet moved to the traditional safe havens. The dollar rose 0.3% to 146.50 against the yen, while the euro slipped 0.2% to $1.1500. The dollar index moved slightly higher to 98.958.
World Equities and Investor Sentiment
Futures on European markets were also lower: the Eurostoxx 50 was down 0.4%, FTSE futures fell 0.3%, and Germany’s DAX futures dropped 0.5%. The declines come as both Europe and Japan remain vulnerable to global energy price shocks due to their reliance on oil and LNG imports
Nevertheless, global stock markets displayed some resilience. Analysts say markets may be responding not just to the crisis at hand, but also to the prospect that regime change or diplomatic solutions could reduce long-term risks.
Fed Policy and Risk of Inflation
On the policy front, U.S. investors continue to keep a close eye on the Federal Reserve. Treasury yields rose by 2 basis points to 4.395 %, reflecting expectations about inflation risks tied to both tariffs and rising energy costs.
Fed Governor Christopher Waller has urged a July rate cut, but most other policymakers, including Fed Chair Jerome Powell, have been more careful. Markets are now pricing in a possible cut in September, and there is only a minimal chance of a move in the July 30 meeting.
This week alone, at least 15 Fed officials are scheduled to speak, including Powell, who will appear before lawmakers for two days of testimony. Among the main topics that will be discussed are the fallout from Trump’s tariffs and the Iran crisis.
What’s Next
A NATO leaders’ summit meeting in The Hague will also address the Middle East and defense spending. Investors are also awaiting key U.S. data, including core inflation for May, weekly jobless claims, and early readings on global factory activity for June.
