Global Markets Weekly: $100 Oil, Three Weeks of Losses and the Inflation Warning for Investors

Global financial markets endured another punishing week, with major equity indexes declining for the third consecutive time as the Iran conflict continued to dominate investor sentiment, energy prices remained elevated, and economic data on both sides of the Atlantic complicated the picture for central banks already navigating an unusually difficult set of trade-offs.

United States: Inflation Climbs, Growth Slows

The week’s defining data point in the US was the Federal Reserve’s preferred inflation gauge — the core Personal Consumption Expenditures index — which rose to 3.1% annually, its highest reading since early 2024. That figure arrived alongside a downward revision to fourth-quarter GDP growth, now estimated at an annualised rate of just 0.7%, compared with the initial estimate of 1.4%. The combination — higher prices, slower growth — is precisely the stagflationary dynamic that policymakers have spent the past two years trying to avoid.

Major equity indexes all closed lower. The S&P MidCap 400 and the Dow Jones Industrial Average led the declines, both falling approximately 2%, while the Nasdaq Composite demonstrated relative resilience with a smaller loss of around 1.3%. Beyond the headline geopolitical and energy pressures, emerging stress in private credit markets added a further layer of concern for investors who had previously treated that asset class as insulated from broader market volatility. Treasury yields rose as investors priced in persistent inflation and ongoing geopolitical uncertainty, creating additional headwinds for rate-sensitive assets.

Against this backdrop, the housing market provided a rare note of stability. Existing home sales rose modestly in February, and affordability conditions improved for the eighth consecutive month — a quiet counterpoint to the broader deterioration in investor confidence.

Europe: Energy Costs, Uneven Data and an ECB Dilemma

European markets mirrored the global mood of uncertainty, with the pan-European STOXX Europe 600 declining during the week as investors assessed the economic consequences of rising energy prices. Among major markets, France’s CAC 40 recorded the largest fall, Germany’s DAX declined modestly, and the UK’s FTSE 100 ended slightly lower. Italy’s FTSE MIB was the sole major index to post gains.

The energy dimension is particularly acute for Europe. ECB President Christine Lagarde acknowledged publicly that rising energy costs could place upward pressure on inflation — a concern that cuts directly to the heart of the central bank’s policy dilemma. The ECB had been navigating toward a position of comfortable stability following eurozone inflation’s return to the 2% target late last year. That carefully managed trajectory is now under pressure from an external shock the ECB can neither control nor easily offset with rate policy.

The underlying economic data did little to reassure. Germany reported a sharp decline in factory orders, indicating weaker industrial demand both domestically and internationally — a continuation of the structural fragility that has defined Europe’s uneven growth trajectory for much of the past year. Eurozone industrial production fell more than expected, recording its largest monthly decline since April 2025. In the United Kingdom, economic output stalled entirely in January, with flat GDP growth reflecting weak performance across several service sectors that offset modest gains in retail and wholesale trade.

Asia: Japan’s Currency Pressures, China’s Resilience

In Japan, equity markets declined as investors assessed the impact of rising oil prices on an economy that imports the overwhelming majority of its energy from the Middle East. The government announced plans to release strategic oil reserves and reintroduced fuel price subsidies — emergency measures that underscore just how directly the Hormuz disruption is feeding into domestic economic conditions. The yen continued to weaken against the US dollar, approaching levels that have previously triggered official intervention, with the 10-year Japanese government bond yield rising as the currency decline raised imported goods costs.

China presented a more mixed picture. While equity markets in some segments declined, the country reported stronger-than-expected export growth, underpinned by global demand for technology and electronics products tied to the accelerating artificial intelligence investment cycle. Consumer inflation accelerated to its fastest pace in more than three years — a notable shift for an economy that has spent much of the past two years battling deflationary pressure rather than price rises.

The Week Ahead

The variables that defined this week — Middle East geopolitics, energy prices, inflation data, and central bank responses — are unlikely to resolve quickly. The Iran conflict’s financial dimensions extend well beyond the immediate oil price shock, with the petrodollar system, global shipping insurance markets, and emerging market currency stability all in play simultaneously. For investors, the key question is no longer whether this disruption is temporary — it is how long it runs, and how much structural damage it inflicts on the inflation trajectories that central banks on three continents were carefully managing just three weeks ago.

The week’s losses did not emerge from a single source of stress. The combination of Middle East geopolitical uncertainty, the Hormuz closure pushing oil higher, core PCE inflation at 3.1%, a downward revision to fourth-quarter GDP, and mounting concern in private credit markets created a convergence of pressures that equity markets have now absorbed for three consecutive weeks without relief.

For the ECB, the picture is no cleaner. Lagarde has acknowledged that rising energy costs could push eurozone inflation back above target just as the bloc had returned it to 2% — leaving the bank caught between an energy shock that would normally argue for tighter policy and an underlying growth picture too fragile to absorb one.

Japan’s position illustrates the global reach of a disruption that some still treat as a regional problem. Importing the vast majority of its oil from the Middle East, Tokyo faces higher energy costs, a weakening yen and rising bond yields simultaneously — a compounding set of pressures the government has moved to cushion through strategic reserve releases and fuel subsidies, but cannot insulate against entirely.

The markets are not pricing in resolution. They are pricing in duration — and that shift in assumption is what makes this moment more consequential than the headline numbers alone suggest.