Public Markets 8-Hour Briefing
×Oil Shock Rattles Markets
US stock futures dropped as the oil price spike boosted inflation fears and threatened to extend the biggest weekly selloff since October. The prospect of a prolonged war in Iran sent energy prices soaring, with crude oil surging past $100 a barrel and stoking concerns over inflation. JPMorgan warned that the S&P 500 could see a 10% correction as war risks build up, while Citadel Securities argued that investors are wrong to bet on Federal Reserve rate cuts given the oil price surge.
Central Banks Grapple With Inflation
Investors reversed bets on central bank rate cuts as the Iran war deepened, with the conflict expected to derail easing plans as policymakers learned from inflation caused by Russia's full-scale invasion of Ukraine. ECB traders bet on two rate hikes as war ignited inflation, a dramatic shift from just a month ago when European Central Bank President Christine Lagarde declared inflation was in a "good place." Meanwhile, Italy's Finance Minister cautioned against the temptation to hike interest rates in response to the Middle East conflict fallout.
Emergency Oil Reserves Under Pressure
G7 finance ministers pledged "necessary measures" to tackle surging crude prices, with a deal expected as soon as Tuesday. However, France said the Group of Seven nations is "not there yet" in terms of organizing a global release of emergency oil inventories in response to the Iran war. European Union Economy Commissioner Valdis Dombrovskis said euro-area finance chiefs will discuss a possible joint release of oil reserves after crude smashed through $100 a barrel. The US and Western allies turned to reserves to counteract the Gulf oil crisis, with discussions over releasing oil buffers showing growing concern in the Trump administration about the spreading impacts of the Iran war.
Energy Markets in Turmoil
Trend riders maxed out on bullish US oil bets for the first time since 2021, as algorithmic traders known for riding trends accelerated price momentum. Russia's President Putin urged nation's oil and gas producers to take advantage of sky-rocketing commodities prices to reduce their debt, warning that the spike will be temporary. Meanwhile, Petrobras held the line on Brazil fuel prices despite the war-driven surge in global oil markets, while Dangote Refinery said it will prioritize supplying fuel in Nigeria as long as it can access local crude.
Corporate Moves Amid Market Volatility
Netflix went from M&A loser to market winner without the Warner Bros. Discovery deal, with its stock price staging a dramatic reversal triggered by management's decision to walk away from the proposed acquisition. Microsoft added Anthropic AI models to its Copilot workplace tools, integrating technology from OpenAI's rival as it diversifies away from the Chat GPT maker. JPMorgan turned bullish on US investment-grade bonds, now expecting spreads on the securities to tighten by 12 basis points, reversing its November projection.
Global Economic Impact
Crude oil price shock inflicted pain on motorists around the world, with the highest weekly jump in US average price of petrol since Russia's full-scale invasion of Ukraine. Wheat approached a two-year high as the impact of the oil price surge widened, with Chicago wheat futures up just shy of 5% from their pre-conflict levels. The SNB was likely intervening in currency markets to curb the franc's strength, according to Bank J Safra Sarasin's chief economist. In Germany, Friedrich Merz's economic plans hit another bump with a state election loss, making his job fixing the country's economy even harder.