Due to Rising Oil Prices, Stock Markets Sharply Decline for the Third Consecutive Week

Global stock prices sharply declined last week, marking the third consecutive week of losses, as investors fear that a strong rise in oil prices will spur inflation, which could force central banks to raise interest rates.

On Wall Street, the Dow Jones index fell 2.1 percent last week, to 45,577 points, while the S&P 500 slid 1.9 percent, to 6,506 points, and the Nasdaq dropped 2.1 percent, to 21,647 points.

After three weeks of sharp declines, the S&P 500 plunged on Friday to its lowest level since September of last year, with other stock indices faring no better.

The crisis in the Middle East shows no signs of abating, and the U.S. and Israel’s war against Iran has entered its fourth week.

– The market has finally realized that the war could last significantly longer than initially expected. It could continue for several more weeks, or even several months – says Jake Dollarhide, director at Longbow Asset Management.

Although U.S. President Donald Trump has declared victory several times, Iran is not surrendering, launching rockets at neighboring countries and U.S. military bases there.

Moreover, Iran is not allowing tankers to pass through the Strait of Hormuz, leading to a significant increase in oil prices. Since the beginning of the U.S. and Israel’s attacks on Iran, oil prices have surged by about 50 percent.

Investors are most concerned that a strong rise in oil prices will trigger inflation. Central banks are already warning about this.

At last week’s meeting, the U.S. Fed decided to keep interest rates unchanged in the range of 3.5 to 3.75 percent. Meanwhile, Fed Chairman Jerome Powell warned that it is completely uncertain how the conflict in the Middle East will affect the economy and that inflation expectations are rising due to the increase in energy prices in recent weeks.

As a result, investors’ hopes that the Fed would lower interest rates this year have diminished, and the hope for lower borrowing costs was the main lever for Wall Street’s growth.

Following the Fed’s moves, both the Bank of England and the European Central Bank kept interest rates unchanged last week and warned of increasing uncertainty due to the conflict in the Middle East.

Because of all this, investors fear that if the war in the Middle East continues, oil prices will rise further, which would strengthen inflation.

This, in turn, would force central banks to raise interest rates, negatively impacting the growth of economies and capital markets.

As a result, stock prices also sharply declined on European exchanges last week. The London FTSE index fell 3.3 percent, to 9,918 points, while the Frankfurt DAX plummeted 4.6 percent, to 22,380 points, and the Paris CAC dropped 3.1 percent, to 7,665 points.

The dollar index, which shows the value of the U.S. dollar against six major world currencies, fell one percent last week, to 99.50 points. Meanwhile, the dollar weakened by 1.35 percent against the European currency, bringing the euro exchange rate to 1.1570 dollars. The U.S. currency also weakened against the Japanese yen by 0.3 percent, with the dollar price sliding to 159.20 yen.