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NEW YORK – Investors are starting to brace for a prolonged Middle East conflict that could stoke fresh inflation fears, threaten economic growth and undermine the case for interest-rate cuts in the coming months.

While whipsawed global markets found steadier ground on Wednesday, after the previous day’s sharp selling, inflation worries remain at the top of the worry list.

Disruption to the Strait of Hormuz – a chokepoint that carries roughly one-fifth of the world’s oil supply – has raised the risk of an energy-driven inflation surge.

“The reality is setting in that a prolonged conflict could dampen global growth and re‑ignite inflation pressures,” said Joseph Tanious, chief investment strategist at Northern Trust Asset Management in San Diego.

SOUTH KOREAN MARKET TUMBLES AMID OIL SPIKE

Oil prices jumped for a third straight day on Wednesday, although US stock futures ESc1 pointed to a positive open and European shares rallied.

Energy import-dependent countries such as South Korea have also been hit hard, with South Korea’s KOSPI benchmark closing down 12% on Wednesday, its largest drop on record.

The S&P 500 briefly hit its lowest level in more than three months on Tuesday and all 11 of the index’s sectors declined, indicating a broad selloff.

Global government bonds have weakened this week, with US 10-year Treasury yields 2.5 basis points higher on Wednesday at around 4.08%.

The Cboe Volatility Index, Wall Street’s “fear gauge”, also hit its highest level in more than three months.

“The reaction has become more intense… there’s no sign of a quick resolution,” said Que Nguyen, chief investment officer of equity strategies at Research Affiliates in Newport Beach, California. “People are waking up to the fact that this is a lot more complicated than they assumed.”

INFLATION BACK TO THE FORE

Investors zeroed in on the potential pressure on inflation stemming from a sustained rise in oil prices. Brent crude was last near USD 83 a barrel, up from around USD 60 at the start of the year.

The five-year US breakeven inflation – a market-based measure of inflation expectations – is trading at around 2.51%, the highest in almost a month.

Goldman Sachs economists estimate that a sustained 10% increase in oil prices boosts the consumer price index – a closely watched inflation measure – by 28 basis points.

No wonder Wall Street has tempered its expectations for US interest-rate cuts.

Fed Funds futures on Wednesday indicated a roughly 43% chance the Federal Reserve would cut rates by June, after markets had priced in a greater than 50% chance of a cut by that meeting as of late last month.

“The biggest issue that (investors) are trying to weigh gets back to the intertwining of inflation and interest rates,” said Chuck Carlson, chief executive officer at Horizon Investment Services.

Gauges of European inflation have also nudged higher, and notably, markets have moved to start pricing in the chance of a European Central Bank rate hike by year-end.

“We’re multi-asset investors and the worst nightmare for a multi-asset investor is that your bonds and equities move in the same direction,” said Justin Onuekwusi, chief investment officer at St. James’s Place in London.

“When they move in the same direction, it’s when you have inflation fears and inflation expectations rise significantly.”

Other geopolitical volatility involving the United States, such as situations with Venezuela and Greenland, have failed to significantly undermine stocks. Some investors were already eyeing any weakness from the Iran conflict as a possible buying opportunity.

“We are taking cash we raised from tech to aggressively get more positioned for a global acceleration of economic growth,” said Eddie Ghabour, CEO of Key Advisors Wealth Management, whose firm has been buying emerging markets ETFs this week.

Despite the declines this week, the S&P 500 remained only slightly more than 2% from its all-time closing high.

Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management, said the market’s resiliency “suggests to me that investors might be underestimating the geopolitical risk”.

(Reporting by Laura Matthews and Lewis Krauskopf in New York; additional reporting by Suzanne McGee, Saeed Azhar, Gertrude Chavez-Dreyfuss, Stephen Culp and Dhara Ranasinghe; editing by Megan Davies and Alex Richardson)

 

Gold prices drifted lower on Tuesday, weighed by a stronger dollar and dimming prospects for rate cuts as inflation concerns intensified amid fears of a potentially prolonged Middle East conflict.

Spot gold was down 3.6% at USD 5,137.00 an ounce as of 1907 GMT. Prices hit an over four-week high in the previous session.

US gold futures settled 3.5% lower at USD 5,123.70.

“The move lower in gold appears to be driven by a flight to liquidity – a flight to cash. We have a strong dollar and bond yields trading higher,” said Bob Haberkorn, senior market strategist at RJO Futures.

The US dollar, a competing safe-haven asset, posted sharp gains, making dollar‑priced bullion less affordable for holders of other currencies, while US Treasury yields rose for a second consecutive session.

“However, this dip in prices is likely to be short‑lived, and flight to safety flows driven by geopolitical risk should support higher gold and silver prices,” Haberkorn added.

On the geopolitical front, the Iran conflict entered its fourth day as explosions rocked Tehran and Beirut, while a senior Iranian Revolutionary Guards official said on Monday the Strait of Hormuz had been closed. Crude oil benchmarks jumped over 8% on Tuesday in response.

Damage to energy infrastructure and stalled tanker traffic through Hormuz have lifted the risk of sustained strength in oil, gas and refined products, stoking inflation fears and pushing back rate-cut expectations, leaving gold with little support, said Fawad Razaqzada, market analyst at City Index and FOREX.com.

Despite being considered a hedge against inflation and turmoil, gold is typically preferred in low-rate environments, as it yields no interest.

Spot gold has gained 19% this year, supported by global turmoil, following a 64% surge in 2025. Meanwhile, silver was up over 16% this year.

Spot silver fell 6.6% to USD 83.50 an ounce after climbing to a more than four-week high on Monday.

Elsewhere, platinum lost 8.4% to USD 2,108.51 and palladium shed 5.6% to USD 1,667.41.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Krishna Chandra Eluri, Diti Pujara, and Sahal Muhammed)

 

NEW YORK – Investors are starting to brace for a more prolonged Middle East conflict that could stoke fresh inflation fears, threaten economic growth, and undermine the case for interest-rate cuts in coming months.

Markets on Tuesday endured a second day of whiplash asset price moves following the start of strikes by the US and Israeli on Iran over the weekend. A disruption to the Strait of Hormuz – a critical chokepoint that carries roughly one-fifth of the world’s oil supply — raised the risk of an energy-driven inflation surge.

“While not much has changed fundamentally since yesterday, investors are growing anxious about the duration of the war and its impact on energy prices,” said Joseph Tanious, chief investment strategist at Northern Trust Asset Management in San Diego. “The reality is setting in that a prolonged conflict could dampen global growth and re‑ignite inflation pressures.”

As oil prices jumped for a second day, Wall Street’s main indexes slumped, with the benchmark S&P 500 falling 0.9%. Although stocks pared deeper losses from earlier in the session, the S&P 500 hit its lowest level in over three months, and all 11 of the index’s sectors declined, indicating a broad selloff.

Global government bonds weakened, but they came off their lows as traders evaluated how long the conflict is likely to last.

The Cboe Volatility Index, Wall Street’s “fear gauge,” also hit its highest level in more than three months.

“The reaction has become more intense…there’s no sign of a quick resolution,” said Que Nguyen, chief investment officer of equity strategies at Research Affiliates in Newport Beach, California. “People are waking up to the fact that this is a lot more complicated than they assumed.”

Investors zeroed in on the potential pressure on inflation stemming from a sustained rise in oil prices. Brent crude was last around USD 81 a barrel, up from around USD 60 at the start of the year.

The five-year US breakeven inflation — a market-based measure of inflation expectations — rose to 2.503% late on Monday, the highest since February 11.

Goldman Sachs economists estimate that a sustained 10% increase in oil prices boosts the consumer price index — a closely watched inflation measure — by 28 basis points.

Meanwhile, Wall Street appears to be tempering its expectations for interest-rate cuts by the Federal Reserve.

Fed Fund futures on Tuesday indicated a 56% chance the central bank will remain on hold at its June meeting, after markets had priced in a greater than 50% chance of a cut by that meeting as of late last month, according to CME FedWatch.

“The biggest issue that (investors) are trying to weigh gets back to the intertwining of inflation and interest rates,” said Chuck Carlson, chief executive officer at Horizon Investment Services.

Other geopolitical volatility involving the United States, such as situations with Venezuela and Greenland, has failed to significantly undermine stocks. Some investors were already eyeing any weakness from the Iran conflict as a possible buying opportunity.

“We are taking cash we raised from tech to aggressively get more positioned for a global acceleration of economic growth,” said Eddie Ghabour, CEO of Key Advisors Wealth Management, whose firm has been buying emerging markets ETFs this week.

Despite the declines this week, the S&P 500 remained only slightly over 2% from its all-time closing high.

Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management, said the market’s resiliency “suggests to me that investors might be underestimating the geopolitical risk.”

Investors will be watching carefully for developments in the days ahead.

“We’re really still at the mercy of the headlines,” said Kevin Gordon, head of macro research and strategy at Charles Schwab. “The potential for whiplash in parts of the market is very high.”

(Reporting by Laura Matthews and Lewis Krauskopf in New York; additional reporting by Suzanne McGee, Saeed Azhar, Gertrude Chavez-Dreyfuss, and Stephen Culp; editing by Megan Davies)

 

Gold prices fell on Tuesday as investors booked profits after bullion rose more than 2% in the previous session, while pressure from a stronger dollar also weighed on the yellow metal.

Spot gold fell 1% to USD 5,179.77 per ounce by 0735 GMT, snapping a four-session winning streak and dropping from a more than three-week high hit earlier in the day.

US gold futures for April delivery were down 0.5% at USD 5,199.40.

“Obviously, we had a meaningful rally (in gold) yesterday. We have a little bit of a digestion here, and I think it’s noteworthy that we don’t see the panic that we saw on Wall Street extend into the Asian market,” said Ilya Spivak, head of global macro at Tastylive.

Asian stocks stabilised after a wobbly start as a fresh AI-linked selloff on Wall Street rattled investors, with sentiment also hurt by heightened anxiety over US President Donald Trump’s tariff policy and geopolitical tensions.

The dollar edged up, making greenback-priced bullion more expensive for holders of other currencies.

US President Donald Trump on Monday warned countries against backing away from trade deals negotiated recently with the US after the Supreme Court struck down his emergency tariffs, saying that if they did, he would hit them with much higher duties under different trade laws.

Elsewhere, Federal Reserve Governor Christopher Waller said he was open to leaving interest rates on hold at the March meeting if the upcoming February jobs data indicated the labour market had “pivoted to a more solid footing” after a weak 2025.

Markets currently expect three 25-basis-point rate cuts this year, according to CME’s FedWatch Tool.

Spot silver was flat at USD 88.19 per ounce, after hitting a more than two-week high on Monday.

Spot platinum gained 0.1% to USD 2,154.97 per ounce, while palladium added 0.4% to USD 1,750.14.

(Reporting by Ishaan Arora; Editing by Subhranshu Sahu, Rashmi Aich, and Mrigank Dhaniwala)

 

Oil prices rose on Tuesday, nearing seven-month highs, with traders assessing risks to supply from any military escalation as another round of US-Iran nuclear talks loomed.

Brent crude futures rose 48 cents, or 0.7%, to USD 71.97 a barrel by 0658 GMT, while US crude futures climbed 45 cents, or 0.7%, to USD 66.76 a barrel.

Brent is trading at its highest since July 31, while WTI is at its firmest since August 1.

“At this stage, geopolitics is clearly doing most of the heavy lifting for oil prices, with the current firmness largely driven by anticipation rather than actual supply loss,” said Phillip Nova senior market analyst Priyanka Sachdeva.

“The risk of possible military escalation in the Middle East is gaining traction, and thus, traders appear to hedge against worst-case scenarios.”

Iran and the US will hold a third round of nuclear talks on Thursday in Geneva, Oman’s Foreign Minister Badr Albusaidi said on Sunday.

The United States wants Iran to give up its nuclear program, but Iran has adamantly refused, and denied it is trying to develop an atomic weapon.

The State Department is pulling out non-essential government personnel and their families from the US embassy in Beirut, a senior State Department official said on Monday, amid growing concerns about the risk of a military conflict with Iran.

US President Donald Trump said in a social media post on Monday that it would be a “very bad day” for Iran if it does not make a deal.

“In the near-term, geopolitical factors related to the US-Iran conflict are likely to be the primary driver for oil prices,” said OANDA senior market analyst Kelvin Wong.

“For now, WTI crude oil is evolving in a short-term bullish dynamic, holding above its 20-day moving average, acting as a key short-term support at USD 63.90/barrel.”

On the trade policy front, Trump on Monday warned countries against backing away from recently negotiated trade deals with the US after the Supreme Court struck down his emergency tariffs, saying that he would hit them with much higher duties under different trade laws.

“US President Donald Trump created uncertainty for global growth and fuel demand with a new round of tariff hikes,” UOB Bank analysts said in a client note.

Trump said on Saturday he would raise a temporary tariff to 15% from 10% on US imports from all countries, the maximum level allowed under the law.

(Reporting by Trixie Yap in Singapore and Anushree Mukherjee in Bengaluru; Editing by Kevin Buckland; Jacqueline Wong and Muralikumar Anantharaman)