Oil prices reversed their Asian session gains again yesterday, pulling US crude all the way down to the $76pb mark as the International Energy Agency (IEA) announced that it could release a record amount of strategic reserves. The exact amount has not been disclosed yet, but it will reportedly be more than the 182 million barrels released after Russia’s invasion of Ukraine in 2022. There is talk that it could be around 300–400 million barrels.
But that amount remains meagre compared with the roughly 45 million barrels that IEA/OECD countries consume every day. It would therefore be a temporary fix. The announcement is helping keep oil prices in check this morning, but the Middle East is now pumping less oil – around 6% less – in reaction to the Iran war. The duration of the conflict will determine whether the spike in oil prices is over, or whether there is more to come.
Oil prices have therefore become the most important ingredient of market sentiment. If the war ends and the worst – in terms of an energy price spike – is behind us, investors could return to a more constructive mode. But uncertainties loom, and there is a chance that the Iran war will not be done and dusted quickly.
For now, thanks to cooling upside pressure in oil prices, investors are scaling back the early-week jump in inflation expectations, which is helping support equities and bonds. Market volatility is easing and the US dollar is giving back ground against most major currencies. But restoring confidence will take time and require supportive data. And by supportive data, I primarily mean reasonable inflation numbers in the weeks ahead.
Today, the US will release its latest CPI report. But the report will be backward-looking to February—that is before Middle East tensions escalated, pushing energy prices higher. Middle East trade disruptions also threaten food prices via rising fertilizer costs, as fertilizers require natural gas for production and a large share of global supply comes from the Gulf region. And that is without even talking about the potential impact of US tariffs.
So today’s US CPI report will likely be taken with a pinch of salt. Investors will keep in mind that the recent jump in energy prices could add a few basis points to inflation in the coming months, as energy prices often account for a large share of short-term swings in inflation.
Still, the lower today’s CPI reading, the better. US headline inflation may have steadied near 2.4% year-on-year, according to a Bloomberg consensus, while core inflation is seen near 2.5%.
Then on Friday, the US will release the core PCE index for February—the Federal Reserve’s preferred gauge of inflation—which is expected to show around 2.7% year-on-year price growth.
These numbers—combined with the fact that the recent jump in energy prices could push inflation higher in the coming months—suggest that the Federal Reserve (Fed) may not be in a position to cut rates any time soon. Activity in Fed funds futures still prices in a July rate cut with around 55% probability, but there may be room for a hawkish readjustment.
A further hawkish shift in Fed expectations would continue to pressure bond markets pushing US yields higher, which would likely translate into weaker appetite for risk assets. Yesterday’s US Treasury auction, for example, saw soft demand.
Among risk assets, small- and mid-cap stocks are more vulnerable to an energy shock and a potential hawkish readjustment in Fed policy, while US large-cap indices continue to grapple with AI-related uncertainties.
For Big Tech companies, the fear is that revenue growth may struggle to keep pace with massive infrastructure investment, raising concerns that some companies could eventually face balance-sheet pressure.
But there was good news on the wire. Oracle, often seen as a barometer of AI-related investment risks, released earnings after the bell yesterday and both the results and the guidance were stronger than expected. Revenue grew 84% in the period ending Feb. 28 versus 79% expected by analysts, AI investments appear to be paying off, and bookings came in higher than projected. The company also said that customers will fund upfront semiconductor purchases, meaning it will not need to borrow more to meet demand for computing services. Investors reacted positively: the shares jumped around 8% in after-hours trading, helping lift the Nasdaq Composite slightly.
Meanwhile, Amazon reportedly saw strong demand for its US bond sale, one of the largest corporate offerings on record—offering a contrast with rising anxiety about Big Tech’s leveraged AI investments.
Whether Oracle’s results will help lift sentiment across Big Tech remains to be seen. It will also depend on the broader macro environment, where higher interest rates could prematurely reverse the rotation trade back toward Big Tech, though likely with less conviction and more questions than what we saw between 2022 and 2025.
