Oil Back Above $100, Inflation Fears Reignite, Asian Stocks Routed

As of 12:30 Beijing time on July 24 (00:30 ET, July 24), US markets were closed for the overnight session. Asian markets faced a broad sell-off on Friday: the MSCI Asia ex-Japan index fell 1%, Japan’s Nikkei 225 plunged 2.9%, and South Korea’s KOSPI cratered 3.7%^{[China Daily]}. The prior session (Thursday) saw Brent crude settle 7% higher at $102 a barrel, its first time above the $100 mark since May^{[Global Banking & Finance]}; WTI crude gained 6.2% on Thursday^{[Global Banking & Finance]}. In Asian trading Friday, Brent edged slightly lower to $100.85/bbl, but was still on track for a weekly gain of roughly 13.5%^{[Global Banking & Finance]}.

Red Sea Shipping Under Threat, Kazakhstan Output Cuts Add to Supply Fears

The immediate trigger for the oil spike was a sharp deterioration in Middle East geopolitics. According to Reuters, Yemen’s Houthi group claimed on Thursday to have attacked two Saudi oil tankers in the Red Sea, expanding the conflict to a second major shipping chokepoint—the Bab el-Mandeb strait^{[Global Banking & Finance]}. US President Donald Trump subsequently promised “major military punishment” against Iran and its Houthi allies^{[Global Banking & Finance]}. The Houthis had declared a naval blockade on Saudi Arabia on Monday, and Iran had previously pressured the group to close the Bab el-Mandeb in response to continued US strikes on its power infrastructure^{[Global Banking & Finance]}.

Meanwhile, supply-side uncertainty grew. Kazakhstan’s Energy Ministry said Thursday that oil companies had temporarily cut production after a suspected Ukrainian drone attack forced the closure of its main Black Sea export terminal^{[Global Banking & Finance]}. The Caspian Pipeline Consortium (CPC) has halted crude intake from Kazakhstan; the pipeline handles roughly 2% of global daily oil supply. Sources said output at the country’s largest oilfield has been cut by more than half^{[Global Banking & Finance]}.

“The noose around global energy supply routes is tightening again,” IG market analyst Tony Sycamore wrote in a note^{[Global Banking & Finance]}.

Tariffs Compound Energy Shock, Inflation Expectations Reignite

Beyond surging energy prices, trade policy added a fresh inflationary jolt. According to Reuters, the Trump administration announced new tariffs of 10% and 12.5% on goods from 60 trading partners, citing their failure to effectively enforce forced labor bans^{[Global Banking & Finance]}. The move coincided with the expiration of a temporary 10% global tariff.

“The world has to brace for a double whammy of tariffs because oil is essentially a tariff in itself… there is both a physical quantity-determined supply disruption and a price shock from [trade] tariffs,” said Vishnu Varathan, head of macro strategy at Mizuho Bank. “I think the world is now more inclined to guess Trump’s tariff style—which is to escalate first, then negotiate. But with Iran and the Houthis, you can’t exactly take back the bombs you’ve dropped.”^{[Global Banking & Finance]}

The sharp rise in inflation expectations quickly transmitted to bond markets. The US 10-year Treasury yield surged to an 18-month high of 4.7030% on Thursday, while the 30-year yield approached levels not seen since 2007^{[China Daily]}. The 2-year yield also neared its highest since February 2025, at 4.3555%^{[Global Banking & Finance]}. European benchmark borrowing costs climbed to their highest level since 2011^{[China Daily]}.

Central Bank Outlook Flips, Fed Hike Probability Hits One-Third

The reversal in the inflation outlook is forcing markets to reassess major central bank policy paths. According to China Daily, citing market pricing data, the probability of a Fed rate hike next week has risen to one-third, with a September hike now fully priced in—a stark contrast to market expectations just a week ago^{[China Daily]}. The European Central Bank held rates steady on Thursday, but markets are pricing roughly a 70% chance of a September hike^{[China Daily]}.

“Two of the world’s busiest shipping lanes are under threat in the same month, and markets are only beginning to grasp what that means,” said Nigel Green, CEO of deVere Group, in a statement. “With ceasefire deals collapsing and oil back above $100, the oil price decline that had given the Fed room to ease may be reversing… This doesn’t look like a brief spike; it looks like a genuine reopening of the inflation problem.”^{[China Daily]}

Dollar Strengthens, Yen Under Pressure, Tech Earnings Diverge

In FX markets, the dollar index held near 101.45, close to a three-week high^{[Global Banking & Finance]}. The yen remained under pressure, with USD/JPY at 163.86, near a 40-year low^{[Global Banking & Finance]}. The US Treasury warned on Thursday about excessive yen volatility and called on the Bank of Japan to raise rates further^{[Global Banking & Finance]}. Sterling hovered near a three-week low of $1.3313, while the euro traded at $1.1376^{[Global Banking & Finance]}.

In US equities, Wall Street’s three major indices closed lower on Thursday after earnings from Alphabet and Tesla—the first two of the “Magnificent Seven” to report—rattled investors. According to China Daily, both companies burned significant cash in the latest quarter on massive AI infrastructure spending^{[China Daily]}. However, a strong earnings report from Intel provided a brief lift to Nasdaq futures in Asian trading on Friday, with the futures edging up 0.1%^{[China Daily]}. The prior session (July 21) saw US chip stocks rally nearly 3% intraday before sharply reversing; the Dow Jones Industrial Average closed down 0.59% at 51,839.26, its lowest close since June 24^[KuCoin].

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