Stocks at record highs; cooler US inflation eclipses oil rally

Global stocks traded around record highs on Friday, set for a third weekly gain after benign inflation ‌data dented expectations for a US rate hike next month, although faltering talks to end the Iran war sent oil prices higher.

Oil and ​gas prices were still ⁠set for sizeable weekly gains, as the impasse over a peace deal continued and the US threatened to ‌ramp up economic pressure on Iran, including ‌extending a naval blockade.

Yet investors are showing no signs of alarm. Short-dated bond yields have risen this week, but only modestly, while several market-based measures of inflation expectations have continued to trend lower. And gold, which suffers in an environment of rising rates, has touched two-month highs.

Instead, the focus remains on the broad AI ‌theme in the wake of strong earnings that have helped soothe investor worries about massive AI spending.

The MSCI All-World index, which is up ⁠for a third straight week, traded just below record highs, while in Europe, the STOXX 600 gauge was a touch lower on the day, as losses in the tech sector were broadly offset by gains in capital-intensive shares such as defence and automakers.

“The markets round out the week on a positive note, with relatively thin event risk on the economic and corporate calendar. But of course, it’s a Friday, and the typical pattern has been for geopolitical risks, or at least bombastic rhetoric, to pick up between the US and Iran going into the weekend,” Capital.com strategist Kyle Rodda said.

“Currently, the ​geopolitical uncertainty remains the only major macro roadblock to a market experiencing strong tailwinds from earnings and the monetary policy outlook.” Brent crude ‌futures steadied around $87 a barrel, heading for a 6% weekly gain, while European natural gas futures were set for a 10% gain and US gas futures, for a 3.2% rise.

Meanwhile, the VIX volatility index, which many view as the market’s “fear index”, was set for a fourth weekly fall, the longest such stretch since ⁠May 2025, in a reflection of the diminishing level of worry among equity investors, while a measure of bond market volatility headed for a second weekly drop.

John Sidawi, senior portfolio manager for fixed income at Federated Hermes, said a puzzling feature of markets in recent months has been the growing disconnect between geopolitical uncertainty and asset ​price volatility.

“For now, markets ‌appear willing to tolerate a significant amount of uncertainty without demanding higher risk premiums. However, this equilibrium is unlikely to be permanent,” Sidawi said.

“A ‌meaningful escalation in conflict or a clear path toward resolution could finally force investors off the sidelines, potentially triggering a much larger volatility response than current market pricing implies.”  In currencies, the yen strengthened, leaving the dollar down 0.2% at 159.13, after a Reuters report that the Bank of Japan could raise rates ‌as soon as September, ‌according to three sources familiar with policymakers’ thinking. However, it is still within sight ⁠of the 160 level that traders think could trigger another bout of yen buying from Tokyo, after a joint intervention ‌with the US last month failed to support the Japanese currency.

Padhraic Garvey, head of global rates and debt strategy at ING, said the yen’s weakness comes from “an uber-cautious Bank of Japan and a policy rate that remains too low”.

“This tension can be ⁠eased through rate hikes, and the sooner, the better,” said Garvey. “While that could be construed as negative for the economy, it’s also a ​choice. Prioritise the protection of the yen, or not?” In commodities, gold was up 0.1% at $4,352 an ounce, but is still set for its biggest monthly gain since February as central banks and investors alike have poured cash into the market as expectations for the Fed ⁠to raise rates aggressively have faded.

European shares fell slightly on Friday, on track to snap a ‌four-week winning run, as rising ‌crude prices and renewed geopolitical tensions offset support from a resilient earnings season.

The STOXX 600 was down 0.04% at 658.99 by 0910 GMT, hovering near record-high levels despite slipping 0.2% for the week after ‌a 3.3% rally in the previous four weeks. The index has been underpinned by second-quarter profit expectations ⁠for Europe’s blue-chip companies rising for an eighth straight week. Aggregate STOXX 600 earnings are now forecast to grow 23.4%, led by soaring energy and materials profits.

Still, renewed geopolitical tensions and higher oil prices have tempered risk appetite in Europe, a major net energy importer. Oil futures climbed 1% to $87.92 a barrel after the US threatened an indefinite naval blockade of Iran.

Talks between Washington and ​Tehran remained deadlocked, with both sides hardening their rhetoric in recent days.

“The whipsawing of ‌oil is priced in for now,” said Angeline Ong, senior technical analyst at IG. “But until we get any confirmation of a tangible deal that allows traffic to flow through Hormuz, we’re just ⁠going to be trading sideways. It’s just going to be choppy.” Energy stocks rose 0.3%, while mining companies led sectoral losses, down 1.1% as gold prices slipped, with investors taking profits after bullion surged to a more-than-two-month ​high on Thursday. Meanwhile, ‌softer US consumer and producer price data this week reinforced expectations that the Federal ‌Reserve may hold off on further monetary tightening. Technology shares added 1.1% after Reuters reported that private equity firm Silver Lake is in talks to acquire Workday .

Agencies