The global market is gradually accepting a new macro scenario: the Middle East conflict may persist, keeping oil prices around $100 for an extended period.
This expectation is reshaping asset pricing in global financial markets.
The Return of Stagflation Risk
As energy prices rise, investors are beginning to worry about the global economy entering a stagflation phase.
Stagflation means inflation remains high while economic growth slows, a combination that pressures both stock and bond markets.
Recently, global stock and bond markets have both declined, reflecting investors' efforts to reallocate assets.
Major Changes in Interest Rate Expectations
There has been a significant shift in market expectations regarding Federal Reserve policy.
At the end of February, traders anticipated two rate cuts in 2026. Now, the market is not even fully pricing in a single rate cut.
Meanwhile, expectations for European Central Bank policy have turned more hawkish. The money market anticipates the European Central Bank may hike rates in July and again by the end of the year.
The Dollar as the Sole Safe-Haven Asset
In the current market environment, the dollar has become the primary safe-haven asset.
Since the outbreak of the conflict, the dollar index has risen by more than 2%. Meanwhile, global stock markets have generally declined, with major U.S. indices falling by more than 1.5%.
Analysts point out that as long as oil prices remain high and the conflict continues, the dollar's strong position is likely to persist.
