In summary
- Geopolitical risks continue to unsettle markets
- From fragile relief to renewed unease
- Central banks grow more vigilant
- The week ahead
Geopolitical risks continue to unsettle markets
Markets struggled last week as escalating tensions in the Middle East triggered another sharp rise in energy prices and revived concerns about a stagflationary shock. Brent crude rose almost 9% over the week to around $112 per barrel, having briefly traded close to $120 intraday. While equities initially showed some resilience, sentiment deteriorated as the week progressed. The S&P 500 fell -1.9%, marking its fourth consecutive weekly decline and leaving the index at a four-month low. European equities underperformed, reflecting their greater sensitivity to energy costs, with the STOXX 600 down -3.8%. Higher oil prices also fed through to bond markets, where global government yields moved sharply higher as investors reassessed the inflation outlook.
From fragile relief to renewed unease
Investor sentiment swung repeatedly as markets reacted to rapidly changing geopolitical headlines. Early in the week, hopes that oil flows through the Strait of Hormuz could be partially maintained helped risk assets rebound, with US equities led higher by technology stocks. However, this optimism proved short-lived. Reports of strikes on energy infrastructure, including LNG facilities in the Gulf, prompted a renewed risk-off move, sending oil prices sharply higher and weighing on global equities. Late in the week, comments from US and Israeli officials suggesting restraint around further attacks on energy assets helped calm markets, but continued threats and counter-threats over the weekend underscored how fragile this improvement in sentiment remains.
Central banks grow more vigilant
Against this backdrop, central banks struck a notably cautious tone. While the Federal Reserve, European Central Bank, Bank of England and Bank of Japan all left policy rates unchanged at their respective meetings last week, their communications reflected heightened sensitivity to inflation risks stemming from higher energy prices. This shift contributed to a sell-off in government bonds, with German 10-year Bund yields moving above 3% for the first time in over a decade, UK gilt yields approaching levels last seen in 2008, and US Treasury yields climbing to their highest since last summer. Markets have since pushed out expectations for rate cuts, reinforcing a growing sense of a ‘higher for longer’ interest rate backdrop.
The week ahead
While geopolitical developments are likely to continue dominating headlines, upcoming economic data will still provide important context for policymakers and investors alike. Global flash PMIs for March are due shortly and should offer an early indication of how recent tensions are affecting activity. Inflation releases in the UK, Japan and Australia will also be closely watched, though these will inevitably be backward-looking. Later in the week, attention will turn to the University of Michigan consumer sentiment survey, where the inflation expectations components will be particularly important, given their historical sensitivity to moves in energy prices. In an environment of elevated uncertainty and sharp cross-asset moves, we continue to focus on diversification and resilience, rather than reacting to any single headline or data point.
Contact us
0203 418 0257
info@onekc.co.uk
References
Source: https://www.brooksmacdonald.com/resources/insights/weekly-market-commentary
Weekly Market Commentary
In summary
Geopolitical risks continue to unsettle markets
Markets struggled last week as escalating tensions in the Middle East triggered another sharp rise in energy prices and revived concerns about a stagflationary shock. Brent crude rose almost 9% over the week to around $112 per barrel, having briefly traded close to $120 intraday. While equities initially showed some resilience, sentiment deteriorated as the week progressed. The S&P 500 fell -1.9%, marking its fourth consecutive weekly decline and leaving the index at a four-month low. European equities underperformed, reflecting their greater sensitivity to energy costs, with the STOXX 600 down -3.8%. Higher oil prices also fed through to bond markets, where global government yields moved sharply higher as investors reassessed the inflation outlook.
From fragile relief to renewed unease
Investor sentiment swung repeatedly as markets reacted to rapidly changing geopolitical headlines. Early in the week, hopes that oil flows through the Strait of Hormuz could be partially maintained helped risk assets rebound, with US equities led higher by technology stocks. However, this optimism proved short-lived. Reports of strikes on energy infrastructure, including LNG facilities in the Gulf, prompted a renewed risk-off move, sending oil prices sharply higher and weighing on global equities. Late in the week, comments from US and Israeli officials suggesting restraint around further attacks on energy assets helped calm markets, but continued threats and counter-threats over the weekend underscored how fragile this improvement in sentiment remains.
Central banks grow more vigilant
Against this backdrop, central banks struck a notably cautious tone. While the Federal Reserve, European Central Bank, Bank of England and Bank of Japan all left policy rates unchanged at their respective meetings last week, their communications reflected heightened sensitivity to inflation risks stemming from higher energy prices. This shift contributed to a sell-off in government bonds, with German 10-year Bund yields moving above 3% for the first time in over a decade, UK gilt yields approaching levels last seen in 2008, and US Treasury yields climbing to their highest since last summer. Markets have since pushed out expectations for rate cuts, reinforcing a growing sense of a ‘higher for longer’ interest rate backdrop.
The week ahead
While geopolitical developments are likely to continue dominating headlines, upcoming economic data will still provide important context for policymakers and investors alike. Global flash PMIs for March are due shortly and should offer an early indication of how recent tensions are affecting activity. Inflation releases in the UK, Japan and Australia will also be closely watched, though these will inevitably be backward-looking. Later in the week, attention will turn to the University of Michigan consumer sentiment survey, where the inflation expectations components will be particularly important, given their historical sensitivity to moves in energy prices. In an environment of elevated uncertainty and sharp cross-asset moves, we continue to focus on diversification and resilience, rather than reacting to any single headline or data point.
Contact us
0203 418 0257
info@onekc.co.uk
References
Source: https://www.brooksmacdonald.com/resources/insights/weekly-market-commentary
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