Iran / regional war risk driving oil volatility, yields, inflation, gold and policy uncertainty
Key Questions
What does the Fed FSR identify as the top threat to markets?
The Fed FSR identifies Iran war and oil shock risks as the number one threat, assigned a 75% probability. This includes potential oil price spikes and broader economic impacts from regional conflict.
How could a Strait of Hormuz blockade affect oil and gas prices?
A blockade could push oil prices up 50% and drive gasoline to $4.50 per gallon. EIA projections also show a widening global oil deficit reaching 2.56 mbpd by 2026, with Brent potentially spiking to $106.
What were the latest April inflation readings for CPI, core CPI, PPI, and PCE?
April CPI came in at 3.8% with core at 2.8%, while PPI reached 6% and PCE remained sticky. These figures have kept market expectations for year-end rate hikes between 37% and 51%.
What warnings has ADNOC issued about Gulf oil disruptions?
ADNOC has warned that Gulf oil disruptions could persist until 2027, which would continue to pressure WTI prices. This adds to ongoing volatility from regional tensions.
How are 30-year Treasury yields and global bonds reacting to these risks?
30-year yields have risen to 5.2% amid a global bond selloff and weak auctions. The moves reflect growing concerns over inflation and fiscal pressures linked to oil shocks.
What did the IMF say about the Iran war's impact on UK growth and inflation?
The IMF noted the war's hit to UK growth is less severe than feared, but inflation is still expected to rise. This reflects broader global effects from energy price increases.
What specific warnings have Iranian officials issued about economic fallout?
Iranian leaders including Araghchi and Parliament Speaker Gh have warned of a 'brand new' financial crisis and 'real pain' for Americans from the conflict. These statements have added to policy uncertainty.
How are markets pricing the risk of further Fed rate hikes this year?
Markets currently price year-end hike odds between 37% and 51% due to persistent inflation and oil-driven pressures. The Fed's latest signals have reinforced expectations of higher-for-longer policy.
Fed FSR confirms Iran war/oil shock as #1 threat 75% risk; oil+50% Strait blockade/gas$4.50; Apr CPI 3.8% core2.8%/PPI 6%/PCE sticky; mkts 37-51% YE hike odds; EIA 2026 deficit 2.56 mbpd, Brent $106 spike. New: 30Y yields 5.2%, global bond selloff, weak aucs, Araghchi warnings, IMF UK inflation rise, ADNOC Gulf disruptions to 2027.