Global equities remained near all-time highs on Friday, poised for their third consecutive weekly increase, following mild inflation figures that tempered anticipations for a U.S. interest rate hike next month. However, stalled negotiations aimed at resolving the conflict in the Middle East have contributed to a rise in oil prices.
Both oil and gas prices are on track for significant weekly increases, as discussions for a peace settlement remain unresolved. The United States has indicated a potential escalation of economic pressure on Iran, including the possibility of extending a naval blockade.
Despite these geopolitical tensions, investors seem unfazed. Short-term bond yields have experienced a slight uptick this week, yet several indicators of inflation expectations continue to decline. Gold, which typically struggles when interest rates rise, has reached its highest levels in two months.
The spotlight remains on the broader theme of artificial intelligence, buoyed by robust earnings reports that have alleviated investor concerns regarding substantial AI investments.
The MSCI All-World Index, which is up for the third consecutive week, remains just shy of record levels. In Europe, the STOXX 600 index recorded a minor decline today, with losses in the technology sector being counterbalanced by gains in capital-intensive industries such as defense and automotive.
According to Kyle Rodda, a strategist at Capital.com, “The markets conclude the week positively, with limited economic and corporate event risks on the horizon. However, Fridays often see an uptick in geopolitical tensions, particularly in the rhetoric between the U.S. and Iran as the weekend approaches.” He added, “Currently, geopolitical uncertainty is the primary obstacle to a market benefiting from favorable earnings and monetary policy conditions.”
Brent crude oil futures climbed 1.7% to $88.50 per barrel, heading toward a 6% weekly increase, while European natural gas futures are poised for a 10% rise, and U.S. gas futures are looking at a 3.5% ascent.
The VIX volatility index, often referred to as the “fear index,” is on track for its fourth consecutive weekly decline, marking the longest streak of decreases since May 2025. This trend reflects a growing sense of confidence among equity investors, while a measure of volatility in the bond market is also expected to decline for the second consecutive week.
John Sidawi, a senior portfolio manager at Federated Hermes, noted an intriguing aspect of recent market behavior: the increasing disconnect between geopolitical risks and asset price volatility. “Currently, markets seem willing to endure a considerable level of uncertainty without demanding higher risk premiums. However, this balance is unlikely to last,” Sidawi remarked. “A significant escalation in conflict or a clear resolution path could prompt investors to take action, likely leading to greater volatility than what the current market conditions suggest.”
In the currency markets, the yen appreciated, causing the dollar to dip 0.2% to 159.18. This movement follows a Reuters report indicating that the Bank of Japan might increase interest rates as early as September, according to sources familiar with the situation.
Nevertheless, the yen remains close to the 160 mark, which traders believe could trigger further yen buying from Tokyo, especially after a previous joint intervention with the U.S. last month did not stabilize the currency. Padhraic Garvey, head of global rates and debt strategy at ING, stated, “The yen’s weakness stems from a highly cautious Bank of Japan and a policy rate that remains excessively low.” He suggested that rate increases could alleviate this tension, emphasizing that the sooner, the better. “While this may be viewed as detrimental to the economy, it presents a choice: prioritize the yen’s protection or not?”
In commodity markets, gold prices dipped 0.1% to $4,346 per ounce but are still set for their largest monthly increase since February, as both central banks and investors have infused capital into the market amid waning expectations for aggressive rate hikes by the Federal Reserve.
Source: Financial Chronicle Biz English | Sri Lanka Business News.
