Global shares traded mixed and the dollar firmed following U.S. inflation data that showed a modest pickup in February. However, investor attention remains fixed on oil prices and the potential long-term economic impact of the escalating Middle East conflict.
Data revealed the consumer price index rose 0.3% in February, meeting expectations. The annual CPI rate held steady at 2.4%. Core inflation, excluding food and energy, also matched forecasts at 2.5%.
On Wall Street, the Dow Jones Industrial Average saw a slight decline, while the S&P 500 and Nasdaq Composite posted gains. The dollar strengthened against a basket of major currencies.
Market participants note that February's inflation figures do not yet reflect recent sharp increases in gasoline prices following the Middle East conflict. Traders are pricing in a growing likelihood of interest rate hikes by central banks.
Brian Jacobsen, Chief Economist at Annex Wealth Management, commented that while February inflation was moving in the right direction, the Middle East conflict is shifting the outlook, potentially leading to inflation from energy costs rather than deflation. He also cited chaos in the fertilizer market as a factor that could accelerate food price inflation.
Oil prices experienced volatility, though less extreme than in the prior session. The International Energy Agency is reportedly preparing to recommend the release of 400 million barrels of oil, a record amount, to curb soaring prices. Japan and Germany have confirmed they will release reserves.
Brent crude futures saw an approximate 1.8% increase, trading around $89 per barrel.
The MSCI All-World index dipped slightly, with European shares also declining.
Concerns persist over the Middle East conflict's potential to disrupt global energy trade and trigger a price shock, a situation world leaders are actively addressing. The safety of traffic through the Strait of Hormuz, a critical chokepoint for global fuel supply, remains a key concern amid Iranian threats.
European Central Bank President Christine Lagarde reiterated the bank's commitment to controlling inflation to prevent a repeat of the 2022 energy price shock. Some ECB officials favor a cautious approach.
The euro fell against the dollar, while the pound remained largely stable. The yen weakened, contributing to the dollar's rise.
Rising bond yields, driven by fears of sustained energy-price pressures, have amplified concerns about market overheating, particularly in areas like private credit and AI investments.
Investors have been reminded of vulnerabilities in the private credit sector. JPMorgan Chase has reportedly marked down the value of certain loans held by private-credit groups and is tightening lending to the sector. Deteriorating credit quality, especially linked to AI-driven disruptions in software, has led to investor withdrawals from private credit funds, including BlackRock's HPS Corporate Lending Fund.
U.S. Treasury yields continued to climb, with the benchmark 10-year note yield nearing 4.183%.