Market Commentary: Thursday 28th May

Global markets turned risk-averse as renewed Middle East tensions undermined hopes for a US–Iran peace deal.

Stocks and bonds declined while oil prices surged, with Brent crude rising 3% to around $97 a barrel after US airstrikes on Iranian military targets and new sanctions tied to the Strait of Hormuz. Iran reportedly retaliated by targeting a US airbase, while additional drone and missile threats heightened fears of a broader regional escalation.

The dollar strengthened as investors sought safe-haven assets, while Treasury yields climbed on inflation concerns linked to higher energy prices. Meanwhile, gold and Bitcoin also fell, reflecting broader market unease. Analysts said investor patience is wearing thin as optimism around diplomatic progress fades amid ongoing military exchanges.

The escalation has complicated the economic outlook, particularly for inflation and central bank policy. Investors are now focused on the upcoming US Personal Consumption Expenditures (PCE) report — the Federal Reserve’s preferred inflation measure — which is expected to rise to 3.8% year over year in April from 3.5% in March, well above the Fed’s 2% target. Fed officials warned inflation risks remain skewed to the upside, with Governor Lisa Cook saying rates could rise further if inflation continues accelerating.

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