Gulf Tensions Knock Stocks from Record Highs

Gulf Tensions Rattle Global Markets

Stocks retreated from record highs on Thursday after a fresh U.S. military strike on Iran and Kuwaiti reports of missile attacks dented investor confidence in a peace deal seen as key to easing global inflation risks. Oil rose as much as 4% and bond prices tumbled as the escalation muddied signals on peace talks.

Oil Surges, Bond Yields Rise

Brent crude climbed 2.5% to $96.6 a barrel, while U.S. 10-year Treasury yields rose 1.7 basis points to 4.5% as sustained high oil prices kept upward pressure on inflation expectations. The STOXX 600 fell 0.6%, and U.S. stock futures edged lower.

Fed Rate Hike Expectations Intensify

Attention turns to U.S. personal consumption expenditures (PCE) data, with headline PCE expected to hit a three-year high of 3.8%. Core inflation is seen at 3.3%, well above the Fed's 2% target, prompting calls for a rate hike. The dollar held steady near 99.5 against a basket of currencies.

Dollar Strengthens, Euro Slips

The dollar hovered near a four-week high against the yen at 159.5, while the euro eased 0.1% to $1.161. ECB Chief Economist Philip Lane warned that policymakers must prevent energy cost spikes from feeding into broader inflation expectations.