European markets are on the back foot once again today as the optimism around a swift resolution and controlled energy markets starts to fade.
For Europe, the decline in gas prices for the region is starting to reverse as crude turns upwards, raising inflation concerns that have helped stifle calls for easing from the Bank of England in particular.
Rachel Reeves has yet to bow to pressure amid calls to scrap the 5p fuel duty rise set for September, although the Chancellor has been busy warning MPs that inflation could soon rise as a result of the war in Iran.
Instead, Reeves has opted to use her questionable powers of persuasion to request that fuel retailers avoid using this conflict as an opportunity to make excess profits. Irrespective of whether they seek to ramp up their margins, the fact that crude prices are already some 33% higher than a fortnight ago means the price at the pump will likely surge.
Oil prices remain the main driver of market sentiment, with equities and gold moving inversely to crude prices. Today’s IEA meeting could provide some respite from the upward pressure that has begun to build again, with 32 members voting on plans to tap strategic petroleum reserves to bring down oil prices.
While IEA members hold 1.8 billion barrels in reserves, the speculated record release of 182 million barrels will only provide a short-term reprieve that the markets are likely to look through before long. With the war waging on, and Iran threatening to clog up the Straits through the use of mines, a return to normality appears to be getting more distant by the day. US Special Envoy Steve Witkoff offered some hope of a deal, stating that President Trump is ready for dialogue.
However, we are yet to see a pathway to a deal emerge, and markets are likely to grow increasingly fearful over the long-term implications with each day that passes.
Looking ahead, markets are getting a fresh look at US inflation today, with the latest CPI data arriving just as energy gains push inflation expectations higher. Since energy accounts for only about 6% of the total CPI, it usually takes indirect pressures—like rising food costs—to trigger a significant spike in the headline number.
While this specific release doesn’t yet account for the most recent energy volatility, a higher-than-anticipated print would be concerning, especially if elevated energy prices persist. The dip since Monday’s surge to $120 has kept the hope of two rate cuts alive, although those odds appear to be fading by the day. For markets, any additional inflation concerns are likely to provide a tailwind for the dollar, dampening support for US equities and gold.
