The Middle East conflict has put energy prices “at the wheel” of global financial markets, investors say, as the oil shock creates a sharp dividing line between winners and losers from an upsurge in inflation.
The fallout from soaring oil prices has become a dominant trade across bond, currency and equity markets as investors conduct a sweeping reappraisal of those economies and countries most exposed to an energy shock and those likely to benefit.
Traders have rushed to dump bets on interest rate cuts in economies viewed as most likely to be hit by an inflationary surge, haunted by the experience of past energy shocks. In the process, the US dollar has been revived from a year-long slump, as investors bet on the country’s economic resilience as an oil producer.