Global stocks near record highs on cooling inflation; oil gains on Iran tensions

Global stock markets are trading near record highs, positioning for a third consecutive week of gains. This upward trend is largely attributed to recent U.S. inflation data, which has dampened expectations of an imminent interest rate hike by the Federal Reserve next month. Despite this positive market sentiment, oil prices have seen an increase. This rise is fueled by the ongoing impasse in talks aimed at ending the war in Iran and the potential for the U.S. to intensify economic sanctions, including an extended naval blockade.

However, these geopolitical tensions and oil price fluctuations do not appear to be alarming investors. Short-term bond yields have experienced only modest increases this week, and market-based inflation expectations continue to trend downward. Gold, typically sensitive to rising interest rates, has also reached a two-month high, suggesting a broader investor confidence.

The primary driver of market optimism remains the artificial intelligence (AI) sector. Strong corporate earnings reports, particularly from AI-focused companies, have significantly eased investor concerns about the substantial spending required for AI development. The MSCI All-World index, currently up for its third straight week, is trading just below its all-time peak, with European markets also showing strength.