The war in the Middle East, the bombings of energy infrastructures, the prospects of rising inflation and the change in plans of the monetary and fiscal policy authorities represent a “perfect storm”, which has had a disruptive impact on the markets. Not only did the stock market have to deal with an uncertain scenario, but also the bond and commodity markets reacted to the new developments, sometimes in a way that was incomprehensible to most. But let’s try to clarify things a little.
The rise of oil and gas
Oil has returned to close to $120 a barrel, reflecting Iran’s new attacks on the oil infrastructure of neighboring Gulf countries, in particular Qatar and the United Arab Emirates. The bombings of the last few days have severely tested Doha’s exports of liquid natural gas (LNG), with repercussions that will be serious for the major importing countries in the EU as well as in Asia. The Brent still this morning it trades at 107.86 dollars a barrel, with a small reduction of 0.7%, while the WTI (less compromised) trades at 94 USD (-1.6%). Dutch TTF gas traded on the Amsterdam Stock Exchange also corrects to 59.27 euro/Mwh, down 4%, after gaining 12% yesterday.
Bond yields soar
The events of the last few days risk pushing inflation back upwards, frustrating all central banks’ efforts to stabilize price growth around a 2% target and posing a much greater risk of stagflation (high inflation and modest growth). All this changes the picture presented to the monetary authorities, who have their hands tied and find themselves forced to review their choices and prospects for the coming months, hoping that the conflict will not be too long and the effects on prices will be temporary.
The Bank of England left interest rates unchanged at 3.75%, while the European Central Bank also kept the deposit rate unchanged at 2%, in response to the surge in energy costs and the different prospects that are opening up for monetary policy. The Federal Reserve also passed the buck this week, putting on the attic a possible rate cut by the first half of 2026.
All this has had an impact on the bond market. In response, 10-year Gilt yields increased to 4.848%, up by more than 10 basis points compared to the previous day’s close (+2.17%), after reaching a peak of 4.909%, a new high of the last 52 weeks. On the other hand, the US ten-year Treasury saw the yield rise to 4.279%, the highest in the last two months, while the two-year T-bond jumped to around 3.83%. Finally, the 10-year German Bund remains close to the two-year highs at 2.944%.
Gold no longer shines
What has caused some surprises in recent days have been above all the precious metals which, incomprehensibly considering their nature as a safe haven, have sharply retreated from the highs, despite the escalation in the Middle East. A movement that is not even compatible with its role as a store of value, which sees prices grow in response to higher inflation.
But it must also be considered that gold is also an “alternative” investment asset whose weight is not always the same in portfolios. In this sense, higher interest rates, the result of restrictive policies by central banks, represent a cost of holding gold, which does not offer returns, and therefore the possibility of new rate increases and the rise in government bond yields has offset the other effects, causing the precious metal to retreat.
The April future on gold therefore fell to 4,705 dollars per ounce, highlighting a correction of 7% on a weekly basis, compared to the over 5,000 dollars reached in recent days. Same movement for silver which even lost over 10% in a week to settle at around 73 dollars.
