The Middle East conflict is already driving inflation higher across the world

On Thursday, US indices closed lower. By the end of the day, the Dow Jones Index (US30) fell by 0.36%. The S&P 500 Index (US500) declined by 0.41%. The Tech Index NASDAQ (US100) closed down 0.57%. Recent macroeconomic reports showed that the manufacturing PMI (S&P PMI) for April jumped by 1.7 points to 54.0, marking the fastest growth in almost four years. However, this optimism was overshadowed by an increase in jobless claims to 214,000 and a drop in the Chicago Fed National Activity Index to a four‑month low of 0.20, which came in worse than analysts expected.

On the geopolitical front, the situation has reached a deadlock: the US and Iran are fighting for control over the Strait of Hormuz, using mutual blockades as leverage. Washington expects counterproposals from Tehran to resume the peace process, while Iran refuses to negotiate as long as its ports remain blocked by the US Navy. This uncertainty continues to pressure global markets and keeps supply‑disruption risks elevated.

The European stock market continued to decline. By the end of the day, Germany’s DAX (DE40) fell by 0.16%, France’s CAC 40 (FR40) closed up 0.87%, Spain’s IBEX 35 (ES35) dropped by 0.67%, and the UK’s FTSE 100 (UK100) ended the session down 0.19%. The main negative factor was fresh PMI data confirming that the prolonged energy crisis caused by the blockade of the Strait of Hormuz has begun directly suppressing business activity in the Eurozone. Against the backdrop of attacks on commercial vessels by both Iran and the US, investors began actively selling bank stocks, leading to declines of more than 2% in Santander, Deutsche Bank, and BBVA.

The US natural‑gas prices plunged more than 4% on Thursday, falling to 2.60 dollars per MMBtu – a level close to the lows of autumn 2024. The main driver was the weekly report showing an unusually large storage injection. The build totaled 103 billion cubic feet, not only exceeding analysts’ expectations but nearly doubling the five‑year average for this time of year. Thanks to mild spring weather reducing heating demand, total US gas inventories now stand 7.1% above normal, creating downward pressure on prices.

Asian indices declined yesterday. Japan’s Nikkei 225 (JP225) fell by 0.75%, China’s FTSE China A50 (CHA50) slipped by 0.02%, Hong Kong’s Hang Seng (HK50) closed down 0.95%, and Australia’s ASX 200 (AU200) dropped by 0.57%.

Japan’s economic situation is becoming increasingly contradictory. For the first time in five months, core inflation accelerated, driven by rising energy prices amid the conflict in Iran. Despite this, the figure still has not reached the 2% target, giving the Bank of Japan a formal reason to maintain its ultra‑loose monetary policy. The regulator is expected to leave rates unchanged at next week’s meeting, preferring a wait‑and‑see approach amid high uncertainty.
On Friday, the offshore yuan fell below 6.83 per dollar, ending the week with its first decline in three weeks. The main driver of the Chinese currency’s weakness was the global strengthening of the dollar and the sharp escalation of the Middle East conflict. President Trump’s order to “shoot to kill” Iranian boats in the Strait of Hormuz triggered a new wave of volatility in energy markets and heightened concerns about the safety of maritime trade routes.

The situation in the Persian Gulf is already directly affecting China’s real economy. Due to the spike in oil prices and logistical disruptions, many Chinese exporters were forced to raise their selling prices to offset higher fuel and raw‑material costs. This pressure has begun to spill over into the domestic market: in March, several categories of consumer goods recorded noticeable price increases, ending a long period of price stability in the country.

New Zealand’s domestic agenda now dictates the need for decisive action from the regulator. After the release of high inflation data for the first quarter, traders increased bets on a 25‑basis‑point rate hike as early as May. Inflationary pressure is expected to intensify further in the second quarter, when the recent surge in energy prices caused by the Middle East conflict will be fully reflected in the statistics. The RBNZ has already sent a clear signal to the market that it is prepared to take aggressive measures if price growth accelerates further.