Energy prices rise as geopolitics shape inflation outlook

Market Commentary

European stocks closed sharply lower on Wednesday, erasing prior gains and mirroring bond weakness as soaring energy prices reignited inflation concerns. The Eurozone's STOXX 50 fell 1% to 5 778, while the pan-European STOXX 600 dropped 0.80% to 601. London's FTSE 100 shed 0.60% to 10 354, as traders digested Middle East risks and soft earnings. Germany’s DAX closed 1.64% lower. Fresh strikes in the Iran conflict heightened expectations of prolonged Persian Gulf export disruptions, spurring oil and gas surges that hit European economies. Banks were in the red on rising credit cost outlooks, with Santander, UniCredit and Deutsche Bank each down over 1.50%. Tech lagged as well, led by SAP (-2.5%) and Prosus (-1.6%), while Rheinmetall fell 8% on weak orders.

Turning to the US, equity indices declined on Wednesday, reflecting Treasury losses amid escalating conflict in the Persian Gulf, which drove energy prices higher and intensified inflation concerns for the US economy. The S&P 500 traded firmly below breakeven, the Dow shed just above 400 points and tech strength confined Nasdaq 100 losses to marginal levels. Crude oil and product prices surged further as tensions between Iran, GCC nations, and US-Israeli forces raised expectations of prolonged regional export disruptions. This escalated yields and weighed on credit-sensitive stocks, despite the IEA urging members to release oil stockpiles aggressively and US February CPI data showing no upside surprises. Asset managers slid on private credit concerns, while artificial intelligence (AI) stocks advanced after Oracle soared 8% on better-than-expected guidance.

Locally, the rand closed at 16.48 against the dollar, weaker as investors turned to the greenback amid inflation risks from the Iran conflict. Ongoing pressure arises from global risk aversion and oil price swings – a critical issue for South Africa as a net fuel importer – muddling prospects ahead of the South African Reserve Bank's (SARB) 26 March meeting.

A Business Day report highlights renewed scrutiny of the nation's fuel supply risks, with Middle East escalation spotlighting dwindling reserves and growing reliance on imported petroleum. The Department of Mineral Resources and Energy sought to reassure markets this week, stating no immediate shortages loom and maintaining close coordination with oil majors for supply security.

Echoing this caution, the JSE closed in the red: the All Share Index fell 1.85%, Top 40 dropped 1.99%, Resources plunged 3.75%, and Metals & Mining led losses at -4.57%.

Asian equities rebounded on Wednesday, climbing despite lingering Iran tensions. Japan and South Korea led advances, while mainland China extended gains for a second session. The Shanghai Composite rose 0.26% to 4 134 and the Shenzhen Component added 0.78% to 14 465. Meanwhile, the Nikkei rose 1.43%, as easing oil, following the IEA's historic reserve release proposal, dampened inflation fears and lifted risk sentiment. China's energy security measures, including stockpiles and diversification, position it well against supply shocks.

Finally, gold prices somewhat steadied near $5 190 per ounce on Wednesday, as investors balanced ongoing geopolitical tensions against evolving monetary policy outlooks. Silver and platinum paired losses at 2.97% and 2.11%, respectively. Meanwhile, Brent crude futures eased from earlier peaks, trading around $91 per barrel after touching $93. Traders weighed fresh Strait of Hormuz attacks against the IEA's record emergency reserve release, authorising 400 million barrels from member states.