Global bond markets experienced intensified selling pressure on Friday as renewed oil price increases fueled concerns that conflict in the Middle East could drive inflation higher. Equity markets declined, with global stocks on track for their largest weekly drop in a year as Middle Eastern tensions showed few signs of abating.
As of the latest update, Nasdaq futures fell 0.8%, S&P 500 futures dropped 0.6%, and Dow Jones futures declined 0.6%.
European equities were set for their worst weekly performance since April. The Stoxx Europe 600 index decreased by 0.8%, hovering near a one-month low, with a cumulative weekly decline approaching 5%. As the ongoing Middle East conflict severely impacts global risk appetite and disrupts financial markets, the index remains on course for its poorest weekly showing in nearly a year.
Recent sharp fluctuations in European benchmark stock indices reflect investors' continuous assessment of how rising oil prices may affect inflation and interest rate outlooks. The conflict has entered its seventh day, with Iran launching numerous missiles and drones targeting at least five countries in the region, while Israel conducted its 12th round of airstrikes against Tehran.
S&P 500 futures declined 0.6%. This follows a week of significant market volatility, during which investors repeatedly adjusted their expectations regarding the duration and impact of the military engagement between the U.S., Israel, and Iran. The yield on the 10-year U.S. Treasury note rose 3 basis points to 4.16%, poised to record its largest weekly increase since April ahead of Friday's non-farm payrolls report.
The MSCI All-Country World Index is projected to fall 2.6% for the week, marking its most substantial weekly decline since March 2025.
Oil Prices Continue Rebound Brent crude oil rose 2.1%, surpassing $87 per barrel. This followed comments from Qatari Energy Minister Saad al-Kaabi in an interview with the Financial Times, suggesting the conflict could force Gulf energy exporters to shut down production facilities within weeks, a move that might push oil prices toward $150 per barrel.
Kaabi warned that the war "will drag down economies worldwide." He anticipated that other Gulf exporters, which have not yet declared force majeure, would "follow suit in the coming days" as hostilities continue. This could lead Asian buyers to compete aggressively for limited spot supplies at higher prices, with European markets also facing significant impacts.
A senior White House official stated that the U.S. Treasury Department is exploring measures to limit energy price increases. On Thursday, the U.S. also issued a temporary waiver allowing India to continue purchasing Russian crude oil.
Jim Reid, Global Head of Macro Research at Deutsche Bank, commented, "Investors are growing increasingly concerned that rising oil prices will become entrenched and push global inflation higher." He added, "The reality is we are still trading on conflicting news, with risk appetite swinging back and forth over the past 24 hours."
U.S. Non-Farm Payrolls Report Approaches Rising oil prices have heightened market worries about resurgent inflation, prompting investors to further scale back their bets on Federal Reserve interest rate cuts. The market expects Friday's employment report to show a slowdown in U.S. hiring last month following strong performance in January, while the unemployment rate is anticipated to remain stable. This data typically has a key influence on interest rate expectations, though its impact may now be partially overshadowed by persistent geopolitical tensions.
Traders currently believe that stronger-than-expected jobs data could boost stock markets, even though weaker data would give the Fed more reason to consider rate cuts. The underlying logic is that robust data would reinforce the view that the U.S. economy remains capable of avoiding stagflation despite rising energy prices.
Florian Ielpo, Head of Macro Research at Lombard Odier Investment Managers, said, "The market is likely to interpret strong job growth as evidence that the U.S. economy remains sturdy. This would accelerate the current trend of rapid capital flows back into U.S. equities and further drive the rotational shift we have observed over the past two weeks."
This week, U.S. Treasury yields have surged approximately 18 basis points, marking the largest weekly increase in nearly a year.
U.S. Dollar Strengthens The U.S. dollar rose 0.2% and remains on track for a weekly gain of nearly 1.4%, benefiting from safe-haven demand and reduced market expectations for U.S. rate cuts. The euro remains vulnerable to the impact of soaring energy prices and is projected to fall 1.7% for the week.
Concerns that sustained energy price spikes could reignite inflation have led traders to price in more hawkish interest rate expectations from major central banks. Investors now anticipate the Fed will deliver approximately 40 basis points of rate cuts this year, down from 56 basis points a week ago. Markets are also considering the possibility that the European Central Bank might implement a rate hike before the year-end.
Derek Halpenny, an analyst at MUFG Bank, noted in a report that if the upcoming U.S. jobs data is strong enough to prompt markets to further reduce expectations for Fed rate cuts, the dollar could rise further.
He suggested that, given the Middle East conflict is pushing energy prices higher and raising inflation concerns, stronger-than-expected non-farm payrolls data coupled with accelerated wage growth might lead markets to further pare back rate-cut bets and drive dollar appreciation.
However, he also pointed out that if the conflict persists longer, considering its potential impact on business activity, Friday's employment data "might represent the best performance we see for some time."
The scenario of the Fed holding rates steady throughout the year is transitioning from an extreme assumption to a mainstream market view.
As escalating Middle East tensions boost oil prices and potentially exacerbate inflation expectations, bond options traders are increasingly betting that the Fed will abandon its plans for rate cuts this year.
According to the latest data compiled by the Atlanta Fed, as of Wednesday, traders assigned a 25% probability that the Fed will keep its benchmark rate within the current range through December. This probability has risen significantly from 17% last Friday, the final trading day before the Iran conflict erupted, reflecting a rapid adjustment in market expectations for a shift in Fed monetary policy.
Among various policy scenarios, maintaining the current rate has become the single most likely outcome. Atlanta Fed data shows probabilities of 24% for one 25-basis-point cut and 12% for two cuts. Traders even assign a 16% probability to a rate hike, a notable increase from 8% last Friday.
Goldman Sachs: Oil Could Surge Above $100 if Disruptions Last Five Weeks Despite recent public commitments from the U.S. government to deploy naval forces for escort duties and attempts to provide insurance support for affected tankers through policy measures, Goldman Sachs, in its latest energy research report, indicated that oil markets show significant lack of confidence in whether these interventions can effectively restore shipping lane order.
Goldman Sachs analysts believe the key issue currently lies in the sustainability of commercial shipping, not merely military escorts. The firm has raised its Brent crude price forecast for the second quarter of 2026 to $76 per barrel, a significant increase from the previous forecast of $66, though this remains substantially below the current global benchmark Brent trading price of $85. The WTI crude forecast was similarly raised to $71.
Samantha Dart, Co-Head of Global Commodities Research at Goldman Sachs, explained that this estimate is based on the assumption that oil flow through the Strait of Hormuz will remain at very low levels for approximately five days, followed by a one-month gradual recovery period.
She emphasized that if the strait disruption extends to five weeks, Brent crude prices could climb above $100 per barrel.
Legendary Goldman CEO Warns: Private Credit Risks Resemble Pre-2008 Era Recent negative news has frequently emerged from the U.S. private credit market. A former CEO of Goldman Sachs, who led the Wall Street giant through the darkest days of the 2008 financial crisis, is issuing warnings about the lack of transparency and hidden leverage in private credit.
This former Goldman CEO stated that hidden risks within the private credit market could plunge the U.S. into another financial crisis. He compared the current climate in the approximately $1.8 trillion private credit market to the signs and atmosphere preceding the 2008 subprime mortgage crisis, stressing that hidden leverage and liquidity risks cannot be ignored.
Some Wall Street bankers are also growing increasingly concerned that the private credit market, comparable in size to the 2008 subprime market, may harbor similar risks of rapid contagion.
Stocks in Focus Oil-related stocks were broadly higher in premarket trading: ConocoPhillips, ExxonMobil, Schlumberger, Chevron, and BP all rose more than 1%.
Marvell Technology gained over 12% premarket after reporting earnings and revenue outlook that exceeded market expectations.
Samsara surged 11% premarket following better-than-expected Q4 results and strong guidance.
Dow Inc continued its rise, up 3% premarket, after increasing polyol prices in the EMEAI region and receiving a rating and price target upgrade from J.P. Morgan.
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