ETO Markets Buzz | Oil Risk Returns as Inflation Eases but Energy Shock Threatens Rate Cuts

Global Market Overview | July 2026

According to ETO Markets analysis, global markets are balancing improving underlying inflation trends with renewed geopolitical risks from the Middle East. US core inflation continued to moderate, strengthening expectations that the Federal Reserve may eventually ease policy. However, the sharp rise in crude oil prices following renewed US-Iran tensions has introduced fresh uncertainty over inflation and the timing of future rate cuts.

US equities weakened as investors took profits in AI-related technology stocks and reassessed elevated valuations. The Dow Jones Industrial Average fell more than 400 points, while markets remained focused on whether higher energy costs could delay monetary easing.

Inflation Improves but Oil Adds Risk

US inflation data showed further progress. Core CPI, excluding food and energy, slowed to 2.6% year on year in June from 2.9% in May, below market expectations of 2.8%. Monthly core inflation was unchanged, compared with a 0.2% increase previously, reflecting softer price growth across shelter, healthcare, apparel and household goods.

However, the latest increase in oil prices creates a new inflation risk. Higher energy costs can pass through transportation, production and consumer prices, potentially slowing the disinflation process and complicating the Federal Reserves policy outlook.

Energy Supply Risks Intensify

The escalation of Middle East tensions has pushed crude oil prices sharply higher, with Brent trading above USD 82.50 and recently approaching USD 90.50 per barrel.

The key concern remains the security of major energy routes. The Strait of Hormuz handles around 20% of global oil consumption and 20% of global LNG trade, while the Bab el-Mandeb Strait accounts for around 12% of global seaborne oil shipments.

A prolonged disruption to either route could significantly increase freight, insurance and manufacturing costs. In a more severe scenario, crude prices could move above USD 100 to USD 120 per barrel, creating renewed pressure on producer and consumer inflation.

Markets Reassess Rate Outlook

The current market challenge is the interaction between slowing inflation and rising energy costs. Lower core inflation supports future Federal Reserve rate cuts, but sustained oil price increases could delay policy easing if they begin feeding into broader inflation.

If inflation expectations rise again, central banks may need to maintain restrictive policy for longer. This environment would likely support commodities, energy producers and inflation-linked assets, while creating pressure on long-duration growth equities.

AI Valuations Face Pressure

Equity markets remain supported by long-term AI investment themes, but valuation concerns are increasing. Technology stocks weakened as investors locked in profits and reassessed whether current valuations fully reflect future growth expectations.

The next test will come from major technology and infrastructure earnings, including Alphabet, Intel, Tesla and GE Vernova. Results and guidance will provide further insight into whether AI investment momentum can continue supporting equity markets.

Global Data and Policy Focus

Markets will closely monitor US-Iran developments, US economic indicators and central bank communication. Upcoming US releases include S&P Global PMIs, the Conference Board Leading Economic Index and regional Federal Reserve surveys.

Europe will focus on the European Central Bank decision and confidence indicators, while the UK releases inflation, unemployment and retail sales data. Japan will publish trade and CPI figures, South Korea will release second-quarter GDP, and Canada will report inflation data.

Outlook

Looking ahead, ETO Markets expects energy prices, inflation data, Middle East developments, central bank policy and corporate earnings to remain the dominant market drivers.

Core inflation trends remain encouraging, but the renewed oil shock highlights the risk that geopolitical events could slow disinflation and delay rate cuts. In this environment, ETO Markets continues to emphasise close monitoring of energy supply routes, inflation expectations and policy signals across major economies.

Disclaimer

The information contained herein is for general reference only and does not constitute investment advice, a solicitation, or an offer to buy or sell any financial products.

ETO Markets does not guarantee the accuracy, completeness, or timeliness of the information and shall not be liable for any losses incurred from reliance on such content.