Brent: Inflation risks rise with Hormuz standoff – Deutsche Bank

Deutsche Bank strategists highlight that Brent Oil has broken above $85, closing near $88 as the Strait of Hormuz remains shut and rhetoric between the US and Iran escalates. They notes a fourth straight Brent rally, higher 6‑month futures, and rising Euro inflation swaps, all feeding renewed speculation on more hawkish Federal Reserve (Fed) and European Central Bank (ECB) rate paths.

Oil surge revives inflation concerns

"If the eclipse offers a temporary darkening of the skies, markets found a darker cloud in the inflation outlook yesterday, as oil prices rose again amid the absence of a deal to reopen the Strait of Hormuz, fuelling fresh speculation about rate hikes."

"In fact, Brent crude (+4.99% to $87.72/bbl) rallied past $85/bbl for the first time this month, whilst the 10yr Treasury yield (+6.2bps) unwound the entirety of its decline after Friday’s payrolls with September Fed hike pricing returning to above 50% ahead of tomorrow's CPI."

"In addition, fears of a more protracted standoff were also gaining momentum, with the 6-month Brent future (+4.44%) also up to $80.24/bbl."

"So that helped to revive inflation fears on both sides of the Atlantic, with the 1yr Euro inflation swap (+12.6bps) back up to 2.39% yesterday."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)