Investors concerned about the fallout from the war in the Gulf were initially focused on the inflationary pressure of higher oil prices, triggering a global bond market rout that deepened over the past week. But a new worry has taken a more serious grip: stagflation, the dreaded mixture of high inflation and stagnant growth.
“Markets are beginning to price a more persistent ‘higher for longer’ oil backdrop,” said Emmanuel Cau, head of European equities strategy at Barclays. “This dynamic is reinforcing stagflation concerns.”
Evidence of such worries can be seen in stocks, generally more sensitive to growth than inflation. Global stock indices — led by energy importers in Asia and Europe — jolted lower in recent days, having been relatively muted for the previous few sessions.