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Over the last two trading sessions, WTI crude oil has once again displayed a notable bearish bias, with prices falling nearly 6%. Part of this renewed selling pressure has been driven by recent developments in the Middle East, which have helped temporarily ease the geopolitical tensions that had supported the oil risk premium in previous weeks.
Crude oil prices rose more than 3% by mid-day in London, causing stocks and bonds to drop. Prices have rallied after Trump said Iran had been given an opportunity to reach a deal but had failed to take it. But now Trump said an unprecedented economic operation against Iran will be underway, warning of severe economic consequences for countries providing support to Tehran.
The major European indices and US index futures fell by mid-day in London. The pressure was once again exerted by familiar forced. Bond yields rebounded sharply and a renewed surge in oil prices weighed on sentiment.
Crude oil prices continue to press higher amid the ongoing standoff between the US and Iran. While the softness in US and Chinese data of late does point to some moderation in demand, oil prices remain predominately supply-driven.
US index futures were broadly flat by midday London, following a sharp decline in the previous session. That was before the US Treasury announced thar it was increasing buybacks of long-term debt. That announcement has just caused yields to take a dip, while stock futures and gold have rallied.
If oil prices continue to rise, this could weigh on European markets which have been quite resilient of late. That could weigh on the German DAX forecast given the nation’s reliance on energy imports.
Gold prices recovered in the first half of Friday’s session after yesterday’s decline, helped by another batch of softer US economic data. The rebound could lose momentum however as oil prices pushed higher ahead of the weekend.
US equity futures were little changed in the first half of Friday’s session after the S&P 500 closed at another record high in the previous session
USD/JPY holds its rebound near 160 as the Dow pauses below record highs. Key technical levels signal rising pullback risks amid Fed and geopolitical uncertainty.
The EUR/USD was struggling to find a clear direction. Hardly a surprise, truth be told, ahead of such an important data release. Investors are weighing a renewed surge in crude oil prices in recent days against the prospect of another important US inflation reading. While market volatility remains subdued, the combination of higher energy prices and elevated bond yields is becoming increasingly difficult to ignore.
Crude oil and bond markets are flashing warning signs for risk assets. Yet, investors seem remarkably relaxed. However, if the current situation doesn’t improve markedly, we could see stock markets stage a bit of a correction and in the FX space risk-sensitive currency pairs could take a dip.
Crude oil and DXY bullish setups remain intact as Middle East tensions persist, Fed rate hike expectations reclaim the 50% threshold, and US Treasury yields return toward their 2026 highs.
Volatility across financial markets continues to subside, with investors appearing surprisingly comfortable with rising oil prices and the prospect of the Fed either holding rates steady or tightening policy in September.
