Watching Cracks in the Ceasefire and Rising Inflation While Awaiting Some Key U.S. Economic Data

Key Takeaways

• Israel’s Lebanon offensive excluded from cease‑fire, straining regional stability.
• Strait of Hormuz traffic stalled, keeping oil markets volatile.
• U.S. Q4 2025 GDP revised to 0.5% annualized, core PCE 2.9%.
• European equities fell >1%; oil rose to $98.71 per barrel.
• Serbia and Poland hold rates steady as Middle‑East conflict fuels inflation risk.

Pulse Analysis

The fragile U.S.–Iran ceasefire is already showing cracks. Israel’s renewed bombardment of southern Lebanon was omitted from the truce, and fighting continued to intensify, while the strategic Strait of Hormuz has yet to see normal traffic resume. The lingering disruption in one of the world’s key oil chokepoints has kept crude prices volatile, with West Texas Intermediate climbing 4.5% to $98.71 per barrel despite earlier peaks above $115. This energy squeeze feeds directly into global inflation dynamics, especially in economies already wrestling with post‑pandemic price pressures.

Against this backdrop, the United States released its latest macro data, which largely met market expectations. Real GDP for Q4 2025 was revised down to a 0.5% annualized gain, and the core PCE price index held at 2.9%, confirming a modest but persistent inflationary environment. The Federal Reserve’s minutes echoed this view, signaling a "higher‑for‑longer" stance on the policy rate while leaving open the possibility of an adjustment depending on evolving energy costs and inflation trends. Investors therefore remain cautious, as the modest equity pullbacks in Germany and South Korea reflect concerns that any further escalation in the Middle East could reignite broader price pressures.

Elsewhere, Europe’s industrial output and consumer‑price data painted a mixed picture. German and Spanish production slipped, while the Dutch CPI rebounded to 2.7% after a prolonged deflationary spell. Central banks responded with restraint: Serbia kept its policy rate at 5.75% and Poland paused a series of cuts at 3.75%, citing the geopolitical supply shock as a key inflation risk. These actions underscore how the Middle‑East conflict is reshaping monetary‑policy calculations worldwide, prompting policymakers to balance growth support against the threat of entrenched inflation. The confluence of geopolitical tension, energy market volatility, and steady U.S. data will continue to drive market volatility in the weeks ahead.