More hawkish central banks expected

The UAE’s exit from OPEC weakens the cartel structurally, but markets are focused elsewhere: the Iran conflict and the Strait of Hormuz.

The impact is already visible. Inflation expectations are rising and rate expectations have shifted sharply. US rate cuts this year are no longer expected by investors, while investors are pricing two hikes by the ECB is pricing by year-end.

This is a stagflationary signal: supply-driven inflation forcing central banks to stay hawkish at a moment where economic growth remains weakish especially in Europe.

The economic cost of the conflict is starting to feed through.