Global financial market declined on Friday as escalating tensions linked to the Iran war pushed oil prices above $100 per barrel, raising concerns about inflation and future interest rate decisions.
All three major US stock indexes ended the day and the week in negative territory. The Dow Jones Industrial Average slipped 0.25%, while the S&P 500 dropped 0.6% and the Nasdaq Composite lost 0.9%. European markets also came under pressure, with the STOXX Europe 600 declining 0.5% and a global equity gauge from MSCI falling 0.9%.
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The US dollar strengthened during the market turmoil, rising for a second consecutive week as investors sought safer assets. The currency gained 0.8% against a basket of major currencies.
Energy markets remained the primary driver of volatility. Front-month crude futures for West Texas Intermediate crude settled at $98.71 per barrel, up 3.11%, while Brent crude climbed 2.67% to $103.14, closing above $100 per barrel for the first time since August 2022.
The surge in oil prices followed renewed geopolitical tensions in the Middle East. Donald Trump said the United States would intensify actions against Iran in the coming week, while Iran’s new Supreme Leader Mojtaba Khamenei vowed to keep the Strait of Hormuz closed, raising fears of prolonged disruption to global energy supplies.
Rising oil prices have also affected expectations for interest rates. Traders now anticipate only about 20 basis points of easing from the Federal Reserve this year, compared with expectations of 50 basis points in cuts just a month ago.
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Economic data added to the uncertainty, with the Personal Consumption Expenditures index rising 0.3% in January, in line with forecasts but reinforcing concerns that inflation may remain persistent.
Investors are now turning their attention to upcoming policy meetings by major central banks next week, including the Federal Reserve, as markets assess the outlook for interest rates amid ongoing geopolitical tensions.