Take two: Oil price climbs amid Middle East conflict; Japan GDP revised up

What do you need to know?

The price of Brent crude oil surpassed $100 a barrel for the first time in almost four years last week, driving further market volatility. The spike prompted the International Energy Agency – the global energy watchdog – to announce the largest-ever release of emergency oil stocks. It said its 32 member countries had agreed to make around 400 million barrels of oil available to the global market, to shore up supply amid the ongoing Middle East conflict. Over the week to Thursday’s close, the MSCI World NR and the S&P 500 were each down by 2%, while the MSCI Europe index fell by 1%.* 

*In US dollar terms. Source: FactSet, data as of 12 March 2026 

Around the world

US annual inflation remained unchanged at 2.4% in February, matching January’s rate as rising food and housing costs were offset by falling prices in other sectors. Core inflation, excluding more volatile energy and food prices, also remained unchanged at 2.5%. Meanwhile, China’s inflation rate rose to 1.3% in February from 0.2% in January, its highest level in three years, driven by higher spending over the Lunar New Year holiday period. Separately, China exports jumped by 21.8% in the first two months of this year, despite ongoing trade tensions with the US, driven by strong demand for electronics.

Figure in focus: 1.3%

Japan’s economy grew by more than originally estimated in the fourth quarter of 2025, after business investment and private consumption were revised up. GDP growth was raised to 1.3% from the 0.2% earlier reported, following a 2.6% contraction in Q3. However, separate data showed household spending – which accounts for more than half of Japan’s economy - unexpectedly fell in January. Given the backdrop of geopolitical uncertainty and high oil prices, which could impact inflation and consumer spending, the Bank of Japan is expected to keep interest rates on hold when it meets this week.

Chart of the week 

The Middle East conflict is having a significant effect on monetary policy expectations. Prior to the start of the current military action, the market was anticipating the Federal Reserve would make more than two 25-basis-point interest rate cuts this year, while the European Central Bank would ease by around 13bp, based on market pricing. But these expectations have changed to just 37bp of cuts by the Fed and to over 30bp of hikes by the ECB. The main issue is inflation - the longer the oil market remains subject to geopolitical risk, the more likely it is that there will be a monetary policy reaction.

Words of wisdom

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What’s coming up?

Monetary policy is in focus this week. The Reserve Bank of Australia meets on Tuesday to set interest rates, while Wednesday sees the Bank of Canada and the Fed convene for their respective monetary policy meetings. The Bank of Japan, Bank of England and the European Central Bank hold their own rate-setting meetings on Thursday. In terms of economic updates, Canada issues its latest inflation data on Monday. On Tuesday, the Eurozone publishes its ZEW Economic Sentiment index followed by inflation data on Wednesday, when the US also publishes its Producer Price Index measure of inflation.