Global stock markets fell on Friday as fears of flaring tensions in the Middle East sent oil prices higher, raising fears that stubborn inflation could delay central banks from cutting interest rates.
The region-wide Stoxx Europe 600 was down 1.1 per cent in early trading, echoing a late sell-off on Wall Street on Thursday. Energy was the only sector that gained, as oil prices topped $91 per barrel.
France’s Cac 40 and Germany’s Dax slipped 1.2 per cent. London’s energy-heavy FTSE 100 fared slightly better, but still dropped 0.9 per cent.
The moves came as traders weighed the potential of a widening conflict in the Middle East and a possible Iranian retaliation to a suspected Israeli attack on its consulate in Damascus.
Analysts said higher energy prices raise the possibility that the Federal Reserve and the European Central Bank will lower interest rates more slowly this year.
“Surging oil is reviving stagflation fears,” said Emmanuel Cau, head of European equity strategy at Barclays.
Asian stocks also slipped. Japan’s Topix closed 1.1 per cent lower, while South Korea’s Kospi dropped 1 per cent and Hong Kong’s Hang Seng fell 0.4 per cent.
Oil prices had climbed higher in recent weeks as forecasts for global demand began to outstrip supply growth and economic data pointed to a stronger than expected economic recovery in the US, Europe and China.
Brent crude, the international benchmark, traded as high as $91.26 on Friday, the highest level since last October.
“These levels are manageable,” said Francisco Blanch, head of global commodities at Bank of America. “If we go much higher — above $100 — it’s going to cause real problems for the Fed.”
Traders will be paying close attention to the latest non-farm payrolls and unemployment data from the US, due later on Friday, for further clues on the outlook for interest rates in the world’s largest economy.
This article was written by Stephanie Stacey from The Financial Times and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.