Global equity markets were broadly steady on Wednesday while oil prices extended their advance as renewed attacks on shipping in the Middle East weakened hopes of a quick end to the U.S.-Iran war and heightened concerns over the inflationary consequences of prolonged disruption to energy supplies.
The latest attacks came as tensions around the strategically vital Strait of Hormuz intensified. The United States and Yemen’s Iran-aligned Houthi group reported separate attacks involving shipping, while Iran and Washington have escalated their rhetoric in recent days.
Iran’s top security official, Mohsen Rezaei, said on Tuesday that the Strait of Hormuz would remain closed unless the United States accepted Iran’s conditions for ending the conflict. The comments bolstered concerns that any resolution to the war may not immediately restore shipping through one of the world’s most important energy corridors.
President Donald Trump has repeatedly said a deal to end the conflict could be imminent, but the latest developments suggest the path to de-escalation remains uncertain. A prolonged disruption would keep pressure on oil markets and could complicate efforts by central banks to bring inflation back toward target levels.
U.S. crude futures rose 0.8% to $83.89 a barrel, while Brent crude gained 0.7% to $89.49. Both benchmarks were on course for a sixth consecutive daily increase after settling more than $1 higher on Tuesday at their highest levels since July 31.
Oil prices have risen sharply since the start of the week, with both benchmarks gaining about 5% on Monday alone. The rally has begun to feed back into broader market expectations because sustained energy inflation could constrain central banks’ ability to cut interest rates.
“Our base case for a long time has been a gradual but messy de-escalation,” said Dorian Carrell, head of multi-asset income at Schroders.
“We don’t expect traffic through the Strait of Hormuz to go to its full capacity. We think that puts a floor on the oil price and maintains an energy-driven inflationary driver in markets in the near- to medium-term.”
The Strait of Hormuz is particularly important because a prolonged reduction in shipping through the waterway can affect crude and other energy supplies well beyond the immediate conflict zone. Higher transportation, insurance and energy costs can also feed into prices for manufactured goods and consumer services, increasing the risk that an oil shock becomes a broader inflation problem.
That dynamic has put Wednesday’s U.S. consumer price index report at the center of investor attention.
U.S. CPI data due later in the day is expected to show consumer prices rising 0.1% in July after falling 0.4% in June, according to a Reuters poll. Annual inflation is expected to slow to 3.4% from 3.5%.
The July data will not fully capture the latest increase in oil prices, meaning investors will have to assess the inflation report alongside developments in energy markets. Still, the figures could influence expectations for the Federal Reserve’s next policy decision.
Money markets were pricing roughly an even chance of an interest-rate increase at the Fed’s September meeting. That would represent a significant shift in expectations because higher energy prices could make policymakers more cautious about easing monetary policy if inflation remains elevated.
Schroders’ Carrell said a relatively soft CPI reading could support a pause in the near term.
“The CPI projection is expected to come in reasonably soft today, which would tee up a hold before the midterms, all else being equal,” he said.
Fed Bank of Boston President Susan Collins has said she would support a September rate increase if inflation remains high, according to the Financial Times.
The combination of energy prices, monetary policy and geopolitical risk is therefore creating a delicate backdrop for equities. Investors are trying to determine whether the latest oil rally represents a temporary geopolitical shock or the beginning of a more persistent supply disruption that could weigh on economic growth.
So far, equity markets have shown considerable resilience.
In early European trading, the pan-European STOXX 600 was little changed, while Germany’s DAX, France’s CAC 40 and Britain’s FTSE 100 hovered around flat.
Asian stocks performed better, rising 0.7% overall. South Korea’s Kospi jumped 3.7%, while Japanese and Taiwanese shares gained almost 1% as semiconductor stocks rallied.
U.S. stock futures also pointed to a firmer open, with S&P 500 futures up 0.1% and Nasdaq 100 futures gaining 0.4%.
The Nasdaq futures advance was supported in part by renewed enthusiasm for artificial intelligence infrastructure after CoreWeave reported quarterly revenue above Wall Street expectations. The results offered investors another indication that demand for computing infrastructure remains strong even as concerns over the scale and sustainability of AI investment have increased.
The divergence between resilient technology stocks and rising energy prices is important for markets. Strong AI investment has been supporting corporate earnings and capital spending, while higher oil prices threaten to raise costs for consumers and businesses. The balance between those forces could determine whether the current equity rally can withstand a more difficult macroeconomic environment.
Currency markets were comparatively subdued.
The dollar index rose less than 0.1% to 99.86, while the euro and sterling were little changed. The Japanese yen weakened to 159.35 per dollar, remaining significantly weaker than its level of 155.20 reached last week following suspected intervention by Japanese authorities.
Japan’s bond market is showing clearer signs of pressure from changing monetary-policy expectations. The five-year Japanese government bond yield climbed to a record 2.12%, while the two-year yield reached 1.645%, its highest level in 31 years.
Markets were pricing an almost 60% probability of a quarter-point interest-rate increase by the Bank of Japan at its September meeting. A faster-than-expected tightening cycle could provide further support for the yen over time, although the currency remains vulnerable to near-term moves in U.S. interest rates and energy costs.
Gold also benefited from the uncertain geopolitical and monetary backdrop. Spot gold rose 1% to $4,409 an ounce, while silver gained 2% to $66.04.
The market’s immediate focus, however, remains divided between two competing forces: the possibility that the Middle East conflict continues to restrict energy flows, and the possibility that U.S. inflation data remains sufficiently contained to prevent an immediate shift toward tighter monetary policy.
