Markets contended with war, AI growth and inflation
Will oil prices continue to rise?
Markets are still navigating a thick fog of war in the Middle East but for now, they’re treating it as a contained shock rather than a macro regime shift. The key variable remains energy flows. Historically, geopolitical shocks rarely derail equities unless oil supply is materially disrupted. That remains the base case. Oil is still moving, and the global economy entered this conflict in relatively strong shape. Liquidity is abundant, credit conditions remain supportive, and most economic cycles were turning higher before the conflict began.
The risk scenario is straightforward: if the conflict expands and diminishes energy flows through the Strait of Hormuz, oil could push toward $100, and the macro story would change quickly. For now, however, the market continues to assume that, as has often been the case historically, oil will ultimately find a way to flow.
How was Oracle’s earnings report?
Oracle delivered strong earnings driven by surging demand for cloud infrastructure tied to artificial intelligence. Its cloud revenue jumped sharply, with infrastructure sales growing more than 80% year-over-year, as the company continues building massive data centre capacity for customer training and running AI models. The company’s expectations for the coming quarters also came in strong, reinforcing the view that AI infrastructure demand remains robust. The real story, however, is spending.
Oracle’s capital expenditures have exploded, as the company races to build the physical infrastructure required for AI computing. That spending surge was the main reason the stock fell sharply from its previous highs, with investors increasingly focused on how much debt and cash burn will be required to fund the expansion. In other words, the AI opportunity is enormous, but the capital required is just as extraordinary.
Will the Middle East conflict cause inflation?
Most attention around the Middle East conflict has focused on oil. But there’s another commodity whose supply chain issues in the Strait of Hormuz could become problematical: fertilizer. More than a third of global fertilizer trade passes through that corridor, and disruptions are already pushing prices sharply higher just as the spring planting season begins. Prices for urea fertilizer (which promotes rapid plant growth) jumped roughly 30% in the U.S. in a single week following the start of the conflict.
If fertilizer supplies tighten during this critical planting window, farmers may reduce usage, which would lower crop yields later in the year. That could create a second-round inflation effect through food prices. Estimates suggest fertilizer disruptions alone could add roughly two percentage points to food inflation and around 0.15 percentage points to headline inflation in the U.S. In other words, even if oil flows continue, the war could still affect consumers through grocery bills.
Is the market in a strong position?
Looking ahead, markets remain remarkably resilient, for now. Economic fundamentals remain broadly supportive of risk assets (such as stocks), and liquidity conditions are still constructive. But the longer the conflict drags on, the greater the chance that higher energy costs, tighter financial conditions and rising food prices will begin to erode that resilience. Still, it’s worth remembering that history is on our side. War almost always makes the economic outlook look bleak at first, yet markets and economies eventually adapt, even when the conflicts themselves drag on.
Listen to the latest podcast from the IG Investment Strategy Team for further insights.
