Oil Above $100 and Merck’s $6.7 Billion Terns Deal Show How Risk Gets Priced

Oil and rates drove the market setup. U.S. equities sold off as Middle East tensions pushed energy prices higher, with the Dow falling more than 10% from its February peak and entering correction territory. The S&P 500 and Nasdaq posted their fifth straight weekly losses, while mega-cap technology and consumer discretionary names came under pressure.

The concern was inflation. Brent moved above $110 per barrel in parts of the market, and investors stopped pricing Federal Reserve cuts for the year while assigning more probability to a rate hike. The 30-year Treasury yield nearly touched 4.98%, even though fourth-quarter GDP growth was only 0.7%. That combination pointed to stagflation risk rather than a normal slowdown.

The Strait of Hormuz was the key pressure point. Before the conflict, about 20% of the world's seaborne oil supply moved through the waterway. Brent crude for May gained more than 4% to $104.49, while WTI for May ended at $92.35. Conditional access to shipping lanes kept a risk premium in prices.

Supply-chain pressure also hit aluminum. The Gulf region supplies about 10% of global refined aluminum products, including 14% of Europe's import needs and 25% of Japan's. Regional premiums in the U.S., Europe, and Japan rose 30% to 40%, and qualifying alternative suppliers for specialty auto products could take 18 months.

India showed the emerging-market impact. The rupee fell to a record low of 93.94 per dollar and was down nearly 3% since the war began. Foreign investors pulled $9.5 billion from Indian equities, while Bank of America revised its rupee forecast to 94 per dollar by June.

M&A stayed active where buyers had a clear rationale. Merck agreed to buy Terns Pharmaceuticals for $6.7 billion, paying $53 per share, to add a leukemia treatment candidate as Keytruda faces future pressure. Keytruda generated more than $31 billion in 2025 and represented about half of Merck revenue. Apollo also agreed to buy Nippon Sheet Glass in a $3.7 billion turnaround deal, while Blackstone paid $1.8 billion for Royal Challengers Bengaluru.

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