Oil surge fuels inflation and Fed rate fears
United States (US) equity markets pulled back on Friday as concerns over the Middle East conflict fuelled worries that higher energy costs and robust economic data could keep inflation sticky and force the Federal Reserve (Fed) to raise rates before year end. For the week, the S&P 500 still managed its seventh straight weekly gain, its longest streak since late 2023, though both the Nasdaq 100 and Dow Jones finished the week marginally lower.
West Texas Intermediate (WTI) crude oil for July finished 5.87% higher last week at $101.02. While last week’s Trump – Xi meeting offered a glimmer of optimism, China has since shown little appetite for helping to reopen the Strait of Hormuz – and why would it? President Trump has been Beijing’s chief antagonist for more than a decade, and with ample strategic reserves on hand, China can afford to let the US sit in an uncomfortable spot of its own making for a little longer.
Drone strike raises stakes in the Gulf
Further complicating the US president’s ability to defuse the situation were fresh drone attacks on the United Arab Emirates (UAE) and Saudi Arabia overnight. While Saudi Arabia successfully intercepted all three drones entering its airspace, one that penetrated UAE airspace from the west struck an external electrical generator at the Barakah nuclear power plant.
Gulf states have likely been adapting and improving their air defences during the five‑week ceasefire, possibly incorporating Ukrainian anti‑drone systems, and until this weekend’s strike these appeared to be working well. However, targeting a nuclear facility suggests Iran has also adapted its tactics, achieving some success by shifting the direction and origin of this latest assault.
These attacks serve as a pointed warning: any renewed US or Israeli strikes on Iran could quickly trigger further proxy assaults on Gulf energy and critical infrastructure.
Markets turn to data and earnings
Beyond developments in the Middle East, investor attention this week will turn to the Federal Open Market Committee (FOMC) meeting minutes and flash purchasing managers’ indices (PMIs), previewed below. Meanwhile, the US first‑quarter (Q1) 2026 earnings season rolls on, with a solid lineup of reports from major technology, retail and consumer names.
Highlights include Home Depot, Target, Lowe’s and Walmart, with chip giant NVIDIA the clear standout on Wednesday evening.