04.03.26 - Panic fades quickly
Yesterday’s trading session in Europe and this morning in Asia initially showed signs of panic, with sharp declines across several equity indices. Even traditional safe-haven assets such as gold temporarily lost ground, indicating forced liquidations and a broader risk-off reaction.
However, the situation stabilized quickly. The US market appeared far less vulnerable and was comparatively resilient, likely reflecting its lower direct exposure to potential disruptions in Middle Eastern oil and gas flows. As a result, US equities recovered and are now trading even above the levels seen before the conflict with Iran began.
Markets:
Equities: Rebounded, led by US technology stocks
Bonds: Yields moved higher, with the US 10-year Treasury rising back to around 4.10%
Currencies: USD weakened
Commodities: Precious metals advanced, while oil continued its upward move for another day
Cryptos: Rebounded strongly, with Bitcoin climbing back near USD 73k
Volatility: The VIX declined to around 21
My View: At this stage, markets do not appear structurally vulnerable to the current geopolitical escalation. The rapid stabilization suggests that investors still view the conflict primarily as a regional risk and ending soon rather than a systemic shock to the global economy.
However, the more relevant medium-term risk lies in energy markets. Oil prices continue to climb and could become a meaningful drag on the global economy if they do not fall back quickly. Brent crude has already moved above USD 80 per barrel, the highest level in more than a year, reflecting concerns about potential disruptions to energy flows in the region.
If tensions persist or the Strait of Hormuz remains constrained, oil prices could potentially move toward USD 100 per barrel. Such a move would likely increase inflationary pressures and complicate the outlook for central banks, potentially delaying rate cuts or forcing policymakers to keep interest rates higher for longer.
At the same time, higher energy and gasoline prices act as an additional tax on consumers and could weigh on consumption in the coming months.
I cannot fully share the overall optimism currently visible in financial markets. The conflict does not appear likely to end quickly. Even though Iran’s military response so far seems limited in scale, the geopolitical situation remains highly unstable and unpredictable.
Markets may be underestimating the risk of a prolonged conflict and the second-round effects of persistently higher energy prices. Sustained elevated oil prices would likely feed into inflation, keep central banks cautious and ultimately act as a headwind for global consumption and economic growth.
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