Oil prices surged by 3% to near $95 per barrel amid escalating tensions in the Middle East, following Iran’s attack on a U.S. airbase in Kuwait and subsequent U.S. retaliatory strikes. This uptick in oil prices raises concerns over the stability of ongoing negotiations for a ceasefire, which, if successful, could reopen the crucial Strait of Hormuz. While European indices and U.S. futures indicate a subdued trading session, the market’s instinct to “buy the dip” remains strong, albeit with caution.

The potential for rising oil prices and increasing inflation could pressure the Federal Reserve to shift its easing bias, especially with upcoming U.S. PCE data expected to show a jump in inflation rates. This could dampen the recent stock market rally, particularly in tech sectors that have benefited from AI-related momentum. Bank of America warns that a summer correction may be on the horizon, as weakening market breadth and high valuations raise concerns about sustainability.

Market participants should closely monitor the PCE data release today, as it may catalyze a shift in interest rate expectations and impact risk sentiment across equities, particularly in the tech sector. The interplay between oil prices and inflationary pressures could dictate market direction in the coming weeks.

Source: xtb.com