Market reacts to escalations in the Middle East

The International Energy Agency (IEA) called the war in Iran “the biggest threat to energy security in history”, while attacks from both sides on critical energy infrastructure stoked fears of a prolonged oil supply shock. The price of WTI Crude continued to hover close to the $100/barrel level.

Global equities fell -2.8% in EUR terms, with stocks in Europe (where inflation concerns are particularly strong) falling -3.9%.

On Saturday, US President Trump gave Iran a 48-hour deadline to reopen the Strait of Hormuz, warning he would “obliterate” the country’s power plants if the demand is not met. As we write this, that deadline is imminent, and while Trump has not always followed through on threats in the past, his actions in recent weeks have set a different precedent.

In turn, Iran vowed it would “irreversibly destroy” essential water and energy infrastructure in response to such an attack. This marks a potential escalation in the conflict, with Trump’s ultimatum also following reports that the US is sending thousands more troops to the Middle East.

If not for the developing conflict, the market’s focus would likely have been on Nvidia’s GTC conference. The headline from the event was CEO Jensen Huang projecting over $1 trillion of sales through 2027.

Elsewhere, the share price of Super Micro Computer fell -33% after several employees, including its co-founder, were charged by the US Department of Justice for allegedly smuggling Nvidia chips to China.

Central banks in Europe, the US, the UK, and Japan all decided to hold interest rates steady in their respective meetings last week, adopting a “wait-and-see” approach amid current inflationary pressures. Bond yields continued to climb: the US 10-year treasury yield rose from 4.28% to 4.38%, while the German 10-year bund yield climbed from 2.98% to 3.04%. Diminishing hopes of rate cuts and rising bond yields dampened the market’s sentiment around Gold, which fell -11.7% in EUR terms during the week.

Equities

Global stocks finished down -2.8% in euro terms and down -2.0% in local terms last week. Year-to-date global markets are down by -2.3% in euro terms and down by -4.0% in local terms. The US market, the largest in the world, finished down at -2.7% in euro terms and down at -1.9% in local terms.

Fixed Income & FX

The US 10-year yield finished at 4.4% last week. The German equivalent finished at 3.0%. The Irish 10-year bond yield finished at 3.3%. The Euro/US Dollar exchange rate finished at 1.16, whilst Euro/GBP finished at 0.87.

Commodities

Oil finished the week at $98 per barrel and is up 73.8% year-to date in euro terms. Gold finished the week at $4,492 per troy ounce and is up 5.6% year-to-date in euro terms. Copper finished the week at $11,835 per tonne and is down -3.5% year-to-date in euro terms.

The week ahead

Tuesday 24^th March

German, US, UK, and Japan PMI data is released.

Wednesday 25^th March

UK inflation data for February is reported.

Friday 27^th March

UK retail sales data for February is released.