Stock markets mostly fell Thursday, and oil prices rose as the Israel-Iran conflict added to fears over a renewed spike in inflation that could dent economic growth in major countries.
Investors had already taken a cautious stance after the US Federal Reserve kept its interest rates unchanged and warned Wednesday that President Donald Trump’s trade war could reignite inflation and dampen economic growth.
“Equity markets were in the red across Europe and most of Asia,” noted Russ Mould, investment director at AJ Bell, adding that investors were “spooked” by the escalating Israel-Iran conflict.
“Oil prices have shot up in recent days, and any disruptions to Middle East supplies could put them even higher and stoke inflation,” he said.
After gaining more than one percent in Asian trading hours, crude futures fell back but remained higher compared with levels on Wednesday.
As fears grow of direct US participation in the strikes on Iran, analysts said there was a risk that Tehran could shut the Strait of Hormuz, a key shipping lane through which an estimated fifth of global oil supply flows.
“We don’t see it as a likely scenario at this time, but… I think everybody should be watching,” American Petroleum Institute president Mike Sommers told Bloomberg.
The concerns over potential supply constraints boosted share prices of major energy companies Thursday.
French oil and gas giant TotalEnergies topped the Paris CAC 40 blue-chip index in early afternoon trade with a gain of 1.5 percent, while British energy group BP advanced 1.1 percent in London.
US stock and bond markets are closed Thursday for the Juneteenth holiday, which commemorates the official end of slavery in the United States in 1865.
‘Highly Unpredictable’
More central banks took interest rate decisions on Thursday.
The Swiss National Bank cut rates by a quarter point to zero percent, a move aimed at taming the Swiss franc, a haven that has soared against the dollar since Trump launched his tariff onslaught in April.
Norway’s central bank meanwhile made an unexpected cut to its rate, saying economic uncertainty was “greater than normal” because of escalating conflicts and trade tensions.
And as widely expected, the Bank of England held its benchmark rate steady at 4.25 percent, though its governor Andrew Bailey indicated that further cuts were coming as the UK economy slows.
“Interest rates remain on a gradual downward path, although we’ve left them on hold today,” Bailey said, adding that “the world is highly unpredictable”.
Even though the BoE’s only mandate is to maintain price growth at two percent, the bank sounds more worried about the growth outlook than the inflation outlook,” said Kathleen Brooks, research director at XTB.
The dollar traded mixed against main rivals Thursday after the Fed kept rates unchanged for a fourth consecutive meeting despite Trump’s pressure on the central bank to lower borrowing costs.
The Fed said in a statement that “uncertainty about the economic outlook has diminished but remains elevated”.
It cut its 2025 forecast for US economic growth and raised inflation and unemployment expectations, in its first updated projections since Trump unveiled in April his levies on imports.
Fed chief Jerome Powell called the economy “still solid” but warned that “increases in tariffs this year are likely to push up prices and weigh on economic activity”.
Hong Kong led stock market losses in Asia on Thursday, closing down two percent, while Tokyo shed one percent.
Bangkok retreated as a political crisis involving Thailand’s Prime Minister Paetongtarn Shinawatra put her government on the brink of collapse.
Key Figures At Around 1150 GMT
London – FTSE 100: DOWN 0.4 percent at 8,8809.48 points
Paris – CAC 40: DOWN 0.9 percent at 7,587.94
Frankfurt – DAX: DOWN 0.6 percent at 23,184.88
Tokyo – Nikkei 225: DOWN 1.0 percent at 38,488.34 (close)
Hong Kong – Hang Seng Index: DOWN 2.0 percent at 23,237.74 (close)
Shanghai – Composite: DOWN 0.8 percent at 3,362.11 (close)
New York – Dow: DOWN 0.1 percent at 42,171.66 (Wednesday close)
Brent North Sea Crude: UP 1.1 percent at $77.57 per barrel
West Texas Intermediate: UP 1.2 percent at $74.38 per barrel
Euro/dollar: DOWN at $1.1481 from $1.1485 on Wednesday
Pound/dollar: UP at $1.3440 from $1.3420
Dollar/yen: UP at 145.65 yen from 145.09 yen
Euro/pound: DOWN at 85.44 pence from 85.55 pence
