Global stock markets extended their decline on Thursday. As oil and gas prices surged once more, concerns deepened that the Middle East conflict would drive up inflation and hinder economic growth. Concurrently, the bond market also faced a sell-off.
As of the latest update, Dow Jones futures were down 0.20%, S&P 500 futures fell 0.21%, and Nasdaq futures declined 0.32%.
European equities dropped 2%, approaching their lowest levels of the year. Germany's DAX index, heavily weighted with industrial stocks, fell 1.5%. Mining stocks dragged the UK's FTSE 100 index down by 1%. France's CAC 40 index declined 1.2%, pressured by consumer-sensitive sectors like basic materials and luxury goods.
US stock index futures edged lower, with the S&P 500 having already erased all of its weekly gains in the previous trading session.
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Asian markets fell as expectations for Federal Reserve rate cuts diminished and risk appetite waned. A benchmark index for Asian shares dropped 2.8%. South Korea's Kospi index declined 2.6%, while Japan's Nikkei index closed down 3.4% after the Bank of Japan held policy steady as expected.
The sell-off occurred as Brent crude oil climbed above $117 per barrel, extending its cumulative gain since the onset of the conflict to over 60%, following attacks on key energy infrastructure in the Middle East. In contrast, US WTI crude saw a more modest increase of 1.4%, as the price gap between US crude and oil from other regions widened further. European natural gas prices surged by up to 35%.
Qatar stated early Thursday that Iranian ballistic missiles had caused significant damage to the Ras Laffan industrial zone, a critical liquefied natural gas hub. The attack was a response to Israeli strikes on Iran's major South Pars gas field. Subsequently, Iran's president warned that the situation could lead to "uncontrollable consequences with potential global repercussions."
Former President Trump stated that Israel would not launch further attacks on South Pars but threatened that if Qatari gas facilities were targeted again, the US would "completely destroy the entire" South Pars field.
Bloomberg macro strategist Skylar Montgomery Koning noted, "The widening Brent-WTI spread highlights the uneven impact of the Iran conflict—stagflationary shocks could hit European and Asian assets harder than US assets."
Analysts at ING stated, "The issue for global gas markets is not just when the Strait of Hormuz reopens, but how long it will take to repair the damaged facilities." Damage to these facilities means traders must price in longer supply disruptions, as related capacity could be offline for months.
Rising oil prices have heightened concerns about price pressures among global central bankers. The Bank of England voted 9-0 to keep its benchmark rate at 3.75% on Thursday. The Bank of Japan also held rates steady, following the Federal Reserve's decision on Wednesday to maintain policy, with both central banks indicating that the Middle East conflict complicates the policy outlook.
Morgan Stanley joined Goldman Sachs and Barclays in delaying expectations for rate cuts from June to September. Even before the Fed's decision, traders had ruled out rate cuts for this year, with data from the London Stock Exchange Group suggesting the Fed would only make modest moves by mid-2027.
Mathieu Racheter, Head of Equity Strategy at Julius Baer, said, "Market sentiment is clearly risk-off this morning, as investors digest the 'toxic mix' of geopolitical risks and central bank rhetoric. Just as investors grew more comfortable with the inflation outlook by March, renewed escalation in the Middle East has reignited stagflation fears."
Bill Adams, Chief Economist at Comerica Bank, commented, "The biggest benefit of the Fed's decision is that it won't attempt to rescue the economy even if gasoline and diesel prices keep rising. Monetary policy can slow or accelerate growth and inflation, but it cannot offset an energy supply shock, which pushes inflation higher while weakening growth."
Government bond yields rose sharply in Europe and Asia. Traders reinforced bets on two European Central Bank rate hikes this year and now lean toward similar action from the Bank of England. Both the ECB and BoE are set to announce rate decisions later today, following decisions by the Swiss and Swedish central banks to hold rates steady.
The yield on the UK two-year gilt rose 14 basis points to 4.24%, its highest level since March 2025. Germany's two-year bond yield increased 7 basis points to 2.50%. The US two-year Treasury yield rose 4 basis points to 3.81%.
US Treasury yields also moved higher. According to Tradeweb, the 10-year US Treasury yield increased 2.8 basis points to 4.281%. The 2-year yield rose 6.2 basis points to 3.804%; the 10-year yield climbed 2.2 basis points to 4.277%; and the 30-year yield edged up 1.1 basis points to 4.892%.
The US dollar strengthened, reflecting the renewed surge in oil prices. The Dollar Index (DXY) rose 0.1% to 100.208. Filip Andersson of Danske Bank noted in a report, "We emphasize that rising global energy prices and tighter global financial conditions are factors supporting the broad dollar."
The yen fell 0.4%, with traders watching for a potential breach of the 160 yen per dollar level.
Wolf von Rotberg, Equity Strategist at J. Safra Sarasin, stated, "Escalating attacks on Middle Eastern energy infrastructure are increasing the risk of long-term impacts on global oil and gas supplies. Market sentiment is unlikely to change until the escalation dynamic is broken and oil prices normalize."
Gold fell 2.2%, losing over $100 and briefly dropping below $4,700 per ounce. Tim Waterer, Chief Market Analyst at KCM Trade, said, "Despite high geopolitical risks, gold remains under pressure amid a strong dollar and high oil price environment. Increased market volatility has also led to some gold positions being liquidated to cover margin calls on other assets."
Waterer added, "Expectations for imminent US rate cuts have been a key pillar supporting gold prices, but the oil price surge has dampened hopes for monetary easing, somewhat undermining gold's foundation."
On Wednesday, the Fed highlighted the risk that higher energy prices could boost inflation. ING analysts noted, "The oil price increase is due to renewed Middle East escalation, with markets increasingly pricing in risks to energy supply and shipping routes. While geopolitical tensions typically support safe-haven demand, the inflationary impact of higher energy costs is pressuring gold."
Bob Michele, Global Head of Fixed Income at J.P. Morgan Asset Management, commented that the Fed signaled "don't panic" to markets amid soaring oil prices and heightened geopolitical risks from the Middle East conflict.
He expressed skepticism, stating, "Inflation will ultimately be materially impacted, and eventually the labor market won't be spared either."
Michele also noted that whether Fed Chair Powell remains after his term ends in May is a market focus. "I personally think he will stay on past the midterm elections," adding that even if Powell is no longer chair, "his presence would provide market stability."
Morgan Stanley followed Goldman Sachs and Barclays, delaying its expectation for the Fed's first rate cut this year to September. The Wall Street firm now anticipates 25-basis-point cuts in September and December, revising its previous forecast for cuts in June and September.
Morgan Stanley strategists wrote, "The Fed's cautious stance implies a delay in rate cuts. The main risk to our view is that cuts come later or not at all. Conversely, a second wave of oil price surges could weaken economic activity and the labor market, prompting rate cuts."
Technical analysts warned that US stocks are nearing a potential turning point. The S&P 500 fell 1.4% on Wednesday, its worst Fed decision day performance since 2024, breaking a two-day winning streak and closing at 6,624.70, just above its 200-day moving average of 6,615.70.
Jonathan Krinsky, Chief Market Technician at BTIG, noted this was the S&P 500's third test of the 6,600 level since last October. If stocks fall on Thursday, the index could break below this key support.
"We have little confidence it will hold support," he said, adding that this technical pattern suggests a significant chance the S&P 500 could fall back to 6,000, implying a further 10% decline.
**Focus Stocks:** Silver mining stocks declined pre-market: Hecla Mining fell 4.9%, Coeur Mining dropped 5.7%, SilverCrest Metals declined 5.1%, and Endeavour Silver decreased 6.4%.
Memory chip stocks fell collectively pre-market:
RIVIAN rose nearly 10% pre-market after Uber announced an investment of up to $1.25 billion in the company as part of an autonomous taxi partnership agreement.
Nebius fell over 2% pre-market as its convertible bond offering size increased to $4 billion.
DLocal gained 5.6% pre-market following strong Q4 results and the announcement of a $300 million share buyback.
Align Technology rose over 4% pre-market amid reports that Elliott Management holds a significant stake.
Discount retailer Five Below surged over 8% pre-market after reporting strong Q4 results and providing Q1 2026 guidance that exceeded expectations.
Zai Lab continued to fall, down 2% pre-market, after J.P. Morgan cut its price target to $32.
Alibaba declined 4.9% pre-market despite reporting a 2% year-over-year increase in Q3 fiscal revenue to 284.84 billion yuan.
XPeng Motors rose nearly 2% pre-market as it began the official rollout of its second-generation VLA platform.
Up Fintech Holding gained over 4% pre-market following impressive Q4 earnings growth.