Faced with a triple whammy of soaring energy prices, new U.S. tariffs, and a surge in AI capital expenditures, inflation fears are being reignited among global investors.
On the energy and geopolitical fronts, as the Middle East crisis spread from the Strait of Hormuz to the Red Sea and Trump warned of a possible “large-scale strike” against Iran to facilitate a peace agreement, Brent crude futures prices broke through the $100-per-barrel mark for the first time in two months.but retreated on Friday amid diplomatic optimism, closing at $98.38. For the week, prices still rose nearly 12%, marking the third consecutive week of gains, while natural gas prices also surged in tandem.
Furthermore, the U.S. government’s proposal to impose new tariffs of 10% to 12.5% on some trading partners poses a direct threat to global supply chain costs.
Furthermore, massive investments by tech giants in the AI sector—such as Alphabet raising its capital expenditure forecast for this year to $205 billion—and price hikes by companies like Apple, which are passing on costs due to chip shortages, have further reinforced long-term inflationary pressures.
Inflation risks and fiscal concerns have triggered sharp volatility in financial markets. This week, global bond markets have put investors on alert, with bond yields across the G7 rising sharply. On Friday, the yield on the 30-year U.S. Treasury note was just slightly below its highest level since 2007.U.K. government bond yields set a record for the longest consecutive period above 5% in nearly 20 years. The yield on the benchmark 10-year German government bond in the eurozone also approached its highest level since 2011.
Rising U.S. Treasury yields boosted the dollar. The U.S. Dollar Index rose more than 0.7% this week, marking its largest weekly gain since mid-June.The yen is at a 40-year low, and the currency posted its biggest weekly decline in more than two months.
The Nasdaq led the decline in U.S. stocks this week, as tech stocks faced a double whammy from macroeconomic and fundamental factors. The Philadelphia Semiconductor Index plummeted 5% on Friday, with memory chips bearing the brunt of the decline.