Oil Prices Surge as US and UK Launch Strikes on Houthis, Global Markets React
Geopolitical Tensions Propel Oil Prices and Rattle Global Markets - A Comprehensive Look at the Impact on Currencies, Commodities, and Investor Sentiment
Global markets saw a slight uptick on Friday, with shares edging up as the conflict in the Red Sea region escalated. Meanwhile, oil prices experienced a significant jump following airstrikes by the United States and Britain on Houthi military targets in Yemen. The MSCI All-World share index showed a 0.3% increase, driven by a bounce in European markets, particularly the STOXX 600, which rose nearly 1%.
In response to Houthi attacks on ships in the Red Sea, the U.S. and the U.K. launched air and sea strikes, expanding the regional conflict. Oil prices responded with a 2.6% increase, with Brent futures reaching $79.25 a barrel, and U.S. West Texas Intermediate (WTI) crude rising to $73.86.
Market reactions were mixed, as the dollar and gold both edged up, reflecting investor risk aversion. The dollar strengthened against major currencies, and gold rose 0.5% to $2,040 an ounce. Safe-haven assets, such as the Swiss franc, remained mostly steady, but analysts noted a potential shift if the situation escalates further.
In Asia, Japan's Nikkei continued its impressive gains, reaching another 34-year high with a 1.5% jump. Chinese inflation data revealed a weak economic recovery in December, while separate trade data showed an increase in exports and a return to growth in imports.
U.S. consumer prices, reported on Thursday, rose more than expected in December. Despite concerns about inflationary pressures in specific market segments, analysts suggest these factors should abate. The Federal Reserve remains cautious, with Richmond Fed President Thomas Barkin stating that the recent data did little to clarify the path of inflation.
Market futures indicate a 73% probability of a rate cut by March, with expectations of around 150 basis points of easing this year. Treasury yields held steady, with the two-year yield at 4.26%, and the 10-year yield at 3.97%. Euro zone government bonds drew in flows, pushing the yield on the benchmark 10-year German Bund down 6 bps to 2.146%.
European Central Bank President Christine Lagarde mentioned the possibility of rate cuts if the central bank had certainty that inflation had fallen to its 2% target, providing some support in the European bond market.