Oil slump eases inflation fears as markets reassess Iran war risk

Vice President JD Vance said the war was clearly responsible for Republicans’ heavy losses in the midterm elections, while President Donald Trump also acknowledged the political cost, though he said the war was worth it. Investors took the comments as evidence that the US was unlikely to intensify the conflict soon. That reduced the risk premium embedded in oil prices.

The oil sell-off, if sustained, would mark the steepest weekly decline since the pandemic plunge. Lower crude prices pulled bond yields down globally and helped lift Wall Street shares on Wednesday. The S&P 500 had its best session in three months.

The rally partly masked continuing concerns about AI-focused technology companies. Investors worried a Congress dominated by Democrats might resist rapid data-center construction and impose greater scrutiny and regulation. US chip shares fell again despite strong AMD earnings, while data-center company CoreWeave also plunged. Major cloud-computing firms, which are spending heavily and issuing large amounts of debt, benefited from hopes of slower oil-driven inflation and lower borrowing costs.

Chip-heavy indexes in South Korea and Japan fell sharply early Thursday. The dollar also weakened, as traders adjusted expectations for inflation and interest rates and weighed concerns about AI stocks.

Sterling rose sharply on Wednesday ahead of the Bank of England’s expected rate decision. A hike would be its first in three years. The central bank is also expected to raise its UK growth forecasts, though this week’s oil decline could make policymakers less certain about the path of rates after the decision.

Economists polled by Reuters expect the Bank of England to raise its rate to 4% on Thursday, then leave it as the peak until a reversal in 2028. The fall in oil prices has strengthened the view that the hike could be a one-off.

Events on Thursday include US weekly jobless claims and October Challenger layoffs data, earnings from ConocoPhillips and Airbnb, and speeches by Cleveland Fed President Beth Hammack, Richmond Fed President Thomas Barkin, Dallas Fed President Lorie Logan and European Central Bank President Christine Lagarde.