Global Stocks Slide as Oil Jumps and Rate-Hike Bets Rise

Global stocks and government bonds fell on Friday as investors weighed the risk that Middle East tensions and higher oil prices could add to inflation and keep U.S. interest rates higher for longer.

In U.S. trading, the S&P 500 fell 1% and the Nasdaq Composite dropped 1.4%. The 10-year Treasury yield rose 0.1 percentage points to 4.56%, its highest level in nearly a year.

Oil prices climbed, with Brent crude up 2.5% to $108.31 a barrel. Investors focused on fears of tighter global supply linked to the Strait of Hormuz.

Traders also increased expectations for U.S. interest-rate increases, reflecting the combined impact of energy prices and recent inflation data.

In Europe, shares and bonds also sold off. The Stoxx Europe 600 fell 1.56% and Germany’s Dax dropped 1.9%, while the yield on Germany’s 10-year Bund rose 0.09 percentage points to 3.14%.

Oil and the Strait of Hormuz in focus

Market attention remained on oil after reports of intensifying concerns over global supply, particularly related to the Strait of Hormuz. Higher crude prices can feed through to consumer inflation and raise uncertainty about the path of interest rates.

Brent’s move to $108.31 a barrel came alongside declines across equities and a rise in government bond yields, signaling investor caution and a shift toward pricing in more persistent inflation risks.

Inflation data pushes rate expectations higher

Derivatives markets showed a change in expectations for the Federal Reserve. Traders were fully pricing in one U.S. interest-rate increase by March next year and assigned more than a 50% chance of an increase before the end of 2026.

Earlier in the week, expectations for a rate rise within the next 12 months were roughly evenly split. The change followed a set of inflation readings that came in hotter than forecast.

U.S. Consumer Price Index inflation rose to 3.8% in April, exceeding forecasts. The Producer Price Index also pointed to stronger price pressures, with wholesale inflation rising to 6%, the highest since 2022.

Markets will continue to track oil prices and upcoming inflation and rate signals for evidence of whether the latest move reflects a temporary shock or a broader shift in inflation expectations.