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March 18, 2026 – 15:39

(Bloomberg) — A surprisingly hot inflation report from before the war in Iran drove stocks and bonds lower, with an oil surge amid strikes on Persian Gulf facilities fueling worries about energy disruptions and further price pressures.

Signs that the conflict in the Middle East is escalating spurred a flight away from the riskier corners of the market. The S&P 500 halted a two-day advance. Brent approached $110. In the run-up to the Federal Reserve decision, Treasury yields rose as the producer price index unexpectedly accelerated, with traders reducing bets on even a single interest-rate cut in 2026.

“The markets continue to be on edge as each headline out of the Middle East causes knee-jerk reactions,” said Jay Woods at Freedom Capital Markets. “Crude is driving the bus and the longer it stays above $90 – or spikes higher – the ‘buy-the-dip crowd’ grows quieter and the ‘sell-the-rally narrative’ gets more dominant.”

Markets were roiled anew as Iran warned countries around the Persian Gulf that a number of energy assets are now “legitimate targets” after Israel attacked its giant South Pars gas field, sending further shockwaves through energy markets.

Oil prices have soared almost 50% since the US and Israel began the war on Feb. 28, triggering a response from Iran that’s seen missiles and drones fired at countries across the Middle East. Regional energy giants have been forced to cut production in response, particularly due to the effective shuttering of the critical Strait of Hormuz.

President Donald Trump temporarily waived a century-old shipping mandate to lower the cost of transporting oil, gas and other commodities, marking his latest bid to combat the rise in energy prices spurred by the war.

The spike in oil prices risks adding to inflationary pressures while restraining the economy. Fed officials, who are widely expected to keep rates unchanged, now turn their attention to the supply shock.

They will release a post-meeting statement at 2 p.m. in Washington. Jerome Powell will hold a press conference 30 minutes later.

“The latest inflation news complicates the Fed’s deliberations just ahead of its policy announcement, as it deals with potential inflation fallout of the war with Iran,” said Gary Schlossberg at Wells Fargo Investment Institute.

The bigger issue for the economy is that inflation is proving sticky while energy costs are rising, which compresses the Fed’s room to maneuver, according to Christian Hoffmann at Thornburg Investment Management.

“I will be listening closely to how Chair Powell frames energy prices, whether he treats them as a temporary shock or something that risks bleeding into inflation expectations,” he said.

One point that has not received enough attention is the disinflationary impact of high oil prices through weaker demand, Hoffmann noted. Energy is clearly an inflation risk, but it is also a meaningful economic headwind, he added.

Corporate Highlights:

Soaring prices for memory chips have made Micron Technology Inc. one of the standout stocks of 2026, and its earnings after the close on Wednesday will give clues on whether the rally is sustainable. Macy’s Inc. forecast stronger-than-expected sales in the current quarter, a sign that its fiscal year is off to a solid start as middle- and higher-income households continue to spend. Lululemon Athletica Inc. forecast a second-straight year of profit declines, further pressuring a brand that’s dealing with product mishaps while searching for a new chief executive officer. General Mills Inc. reported results for last quarter that missed Wall Street projections, weighed down by a decision to lower prices. But executives said they expected to realize the benefits of those reductions in the near future. Tencent Holdings Ltd. plans to at least double investments in AI to more than 36 billion yuan ($5.2 billion) in 2026, underscoring a big bet on OpenClaw-style agents to seize the upper hand in an increasingly combative arena. Alibaba Group Holding Ltd. is raising prices for its AI computing and storage products by as much as 34%, joining a host of big tech firms moving to capitalize on surging demand in the hope of recouping hefty investments. Some of the main moves in markets:

Stocks

The S&P 500 fell 0.7% as of 10:38 a.m. New York time The Nasdaq 100 fell 0.7% The Dow Jones Industrial Average fell 0.9% The Stoxx Europe 600 fell 0.9% The MSCI World Index fell 0.6% Currencies

The Bloomberg Dollar Spot Index rose 0.3% The euro fell 0.3% to $1.1510 The British pound fell 0.3% to $1.3310 The Japanese yen fell 0.3% to 159.51 per dollar Cryptocurrencies

Bitcoin fell 3.8% to $71,715.98 Ether fell 4.7% to $2,219.9 Bonds

The yield on 10-year Treasuries advanced three basis points to 4.23% Germany’s 10-year yield advanced four basis points to 2.95% Britain’s 10-year yield advanced seven basis points to 4.76% Commodities

West Texas Intermediate crude rose 3.1% to $99.15 a barrel Spot gold fell 2.9% to $4,860.65 an ounce ©2026 Bloomberg L.P.