Global stocks hovered near record highs Friday and were on track for a third straight weekly gain, as benign US inflation data reduced expectations for a Federal Reserve rate hike next month.
The positive market tone came despite rising geopolitical tensions, with faltering efforts to end the Middle East conflict pushing oil prices higher and the US threatening to increase economic pressure on Iran, including by extending a naval blockade.
The MSCI All-World index traded just below record highs and was on track for its third consecutive weekly advance. In Europe, the STOXX 600 edged lower, with weakness in technology stocks broadly offset by gains in capital-intensive sectors including defense and automakers.
Oil Set for Strong Weekly Gains
Brent crude futures rose 1.7% to $88.50 a barrel, putting the benchmark on course for a roughly 6% weekly gain.
European natural gas futures were heading for a 10% weekly increase, while US natural gas futures were set for a gain of about 3.5%.
The energy gains came as uncertainty surrounding a potential Middle East peace agreement persisted and Washington threatened additional pressure on Iran.
Despite the geopolitical risks, financial markets have remained relatively calm. The VIX volatility index was heading for its fourth consecutive weekly decline, its longest such streak since May 2025, while the MOVE index was on track for a second straight weekly decline.
Investors Still Focused on AI
The Reuters report said investors remain focused on the broader artificial intelligence theme following strong corporate earnings that have helped ease concerns about the scale of spending on AI infrastructure.
Wall Street's major indexes closed higher Thursday, with the Dow Jones Industrial Average edging up and the S&P 500 gaining nearly 0.7%.
Kyle Rodda, strategist at Capital.com, said geopolitical uncertainty remains the primary macro risk to markets that otherwise have strong support from corporate earnings and expectations around monetary policy.
John Sidawi, senior portfolio manager for fixed income at Federated Hermes, said markets have shown an increasing disconnect between geopolitical uncertainty and asset-price volatility.
He cautioned that a significant escalation in the conflict or a clear path toward resolution could cause a substantially larger volatility response than current market pricing suggests.
Yen Near 160 as BOJ Rate-Hike Bets Rise
In currencies, the yen strengthened, with the dollar down 0.2% at 159.18 yen after a Reuters report that the Bank of Japan could raise interest rates as soon as September.
The yen remains close to the 160-per-dollar level, which traders view as a potential trigger for further intervention by Japanese authorities.
The dollar's weakness comes despite the yen remaining under pressure from what ING's Padhraic Garvey described as an overly cautious Bank of Japan and a policy rate that remains too low.
Gold Near Two-Month Highs
Gold slipped 0.1% to $4,346 an ounce, but remained on course for its biggest monthly gain since February.
The precious metal has benefited from increased purchases by central banks and investors as expectations for aggressive Federal Reserve rate increases have faded.
Market takeaway: Equity markets remain remarkably resilient despite elevated geopolitical risks. Lower rate expectations, strong corporate earnings and continued enthusiasm around AI are supporting risk assets, while oil's surge and the possibility of renewed Iran-related escalation remain the principal threats to the current low-volatility environment.