Middle East tensions drive oil surge amid shifting rate outlook

Market Commentary

WTI crude oil futures climbed over 5.60% to $107.94 a barrel on Thursday, fuelled by US President Donald Trump's renewed warning to Iran to join peace talks and avert further disruptions to global energy supplies. With conflict persisting across the Middle East, President Trump urged Tehran to engage ‘before it is too late,’ despite Iran's rejection of US proposals and reports of its parliament drafting fees for ships transiting the Strait of Hormuz – requiring detailed clearance data. Precious metals retreated as crude's rally stoked inflation fears, eroding hopes for Federal Reserve (Fed) rate cuts. Gold dropped over 2.50% to around $4 389 per ounce – the lowest since early January 2026, while silver fell over 5%.

US equities dropped as surging energy prices heightened stagflation worries. The S&P 500 and Nasdaq 100 fell over 1% the Dow 0.70%. President Trump rebuffed earlier Iran peace signals at a Cabinet meeting, quashing prospects for quick resolution to Persian Gulf export halts. This, alongside a rejected 15-point US plan, kept crude elevated and reinforced Fed caution – trimming a December rate cut odds to 3% (from two expected in 2026).

Treasury yields rose across the curve to eight-month peaks, with the dollar index up for a third session, battering non-yielding assets and high-valuation artificial intelligence (AI) stocks: Micron, AMD, Intel, and Palantir sank over 4%. Alphabet’s leaner AI model research dragged Lam Research and Applied Materials down 4%; Meta plunged nearly 7% on layoffs and a jury deeming its platforms youth-harming.

The South African Reserve Bank (SARB) kept its repo rate at 6.75%, marking a second consecutive pause. Governor Lesetja Kganyago cited upside inflation risks from the Iran conflict, despite February’s headline rate aligning with the 3% target. Energy costs are set to drive inflation to around 4% in 2Q26, led by fuel exceeding 18%, before easing to 3% by late 2027 under the baseline.

Growth forecasts held steady, but models signal prolonged steady rates, with 2026 easing now limited to one cut from two. SARB assessed two conflict scenarios: a brief two-month flare-up or year-long standoff, both pointing to higher-for-longer policy to curb imported pressures.

South Africa’s 10-year bond yield hovered near 9% – the highest since mid-October 2025 – while the rand lingered around 17.00 against the US dollar, near December 2025 lows amid persistent risk aversion and the bank’s pivot. This prudent approach prioritises price stability, likely pressuring rand assets and household spending amid elevated energy costs.

European equities closed sharply lower on Thursday as a fresh spike in energy prices reignited fears of higher Europe Central Bank (ECB) rates and stagflation across the region. The euro‑zone’s STOXX 600 fell 1.10% to 581, while the STOXX 50 dropped 1.50% to 5 566. Germany’s DAX 40 reversed Wednesday’s gains, ending down 1.64%, while UK’s FTSE 100 also closed in the red, slipping 1.41%. Oil and gas prices surged, pushing sovereign bond yields higher and weighing on financial heavyweights. Santander, BNP Paribas and BBVA fell between 2% and 3%, while the power‑intensive industrial sector also retreated, with Siemens Energy and Schneider Electric down 4% and 5%, respectively.

Asian markets ended the session on a weaker note with most major regional indices closing in negative territory. Japan’s Nikkei 225 slipped by approximately 0.27%. In China, the Shanghai Composite Index declined 1.20% to 3 885, reversing two consecutive sessions of gains. The Hang Seng Index in Hong Kong fell over 2%, dragged lower by softer performance in technology‑related stocks.