Against the backdrop of renewed attacks on energy facilities in the Middle East and threats to regional shipping routes, international oil prices have recently surged strongly, directly triggering renewed inflation concerns in Europe. As a result, European stock markets opened generally weaker: the Euro Stoxx 50 fell by 0.6%, Germany’s DAX by 0.3%, France’s CAC 40 by 0.4%, Spain’s IBEX by 0.3%, Italy’s FTSE MIB by 0.5%, while only the UK’s FTSE 100 edged up by 0.3%.
The core logic behind this bout of volatility lies in the interplay between energy supply shocks and long-term inflation stickiness. Earlier, Saudi Arabia’s energy infrastructure was attacked again. The sharp rise in geopolitical risk drove oil prices higher, disrupting the market’s prior expectation that inflation would gradually cool. The sharp rebound in energy costs has prompted investors to reassess the inflation trajectories of major global economies, with concerns that high inflation pressure may persist for longer.
In macro financial markets, the spike in oil prices, combined with the previously rather hot U.S. inflation data, has pushed bond yields higher. Ahead of the Federal Reserve’s upcoming latest rate decision this week—a key turning point—interest rate futures are currently pricing the probability that the Fed will continue hiking at a high of about 87%. The dollar remains firm and U.S. Treasury yields stay resilient. Traditional equity assets overall face downward pressure, with a risk-off and anti-inflation sentiment taking center stage.
For the crypto market, the macro liquidity environment is currently in a phase of contest. Elevated rate expectations and a tense geopolitical situation make risk capital relatively cautious when entering the market; some funds are even more inclined to wait and see the Fed’s final stance. Going forward, the outlook will need to consider both the liquidity tightening brought about by persistently high inflation and the independent absorption capacity of digital assets in a complex geopolitical and macro environment. Overall, it appears to be a tug-of-war scenario with both bullish and bearish factors interwoven.
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