Market action guided by oil and bond yields

Global equities consolidated last week in an environment dominated by rising bond yields and persistent geopolitical unrest. The repricing of monetary policy expectations was the primary catalyst behind the price action as companies’ earnings reports took a back seat.

Rising yields as market comes under pressure

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An intensification of strikes between Israel and Iran, targeting major energy infrastructure in Qatar and the South Pars/North Dome gas field, triggered a fresh surge in hydrocarbon prices last week. Brent crude rose above USD 113 per barrel, rekindling fears of prolonged disruption to global supply. The strategic importance of the Strait of Hormuz (a critical artery for global energy flows) remains undiminished despite diplomatic efforts led by Donald Trump to tack an international coalition together.

The supply shock comes at a sensitive juncture for central banks. The Fed, alongside the ECB, the Bank of England and the Swiss National Bank, have opted to keep policy rates unchanged. Yet behind this apparent stability, the rhetoric has clearly hardened. Jerome Powell, like his counterparts, stressed the difficulty of anticipating the macroeconomic fallout from the conflict, and he acknowledged that higher energy prices will feed through into inflation in the near term.

All major central banks have revised their inflation projections upwards. Markets have interpreted this shift in tone as more restrictive, with expectations of rate cuts scaled back sharply. Yields have moved higher accordingly, with the US 10-year Treasury approaching 4.40% and the German Bund rising above 3%.

Switzerland solid, China in a holding pattern

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The Swiss franc remained firm amid persistent haven demand. This, again, is bad news for exporters. On the monetary front, the Swiss National Bank is maintaining a cautious stance, with attention focused on exchange-rate developments.

In China, markets traded without a clear direction. The absence of meaningful new stimulus measures has limited upside for a remedial rally despite the cheap valuations. Investors remain in a holding pattern, awaiting more reliable signals of fiscal and monetary support. Recent business data was again mixed – a further sign that the recovery is fragile and not benefiting everybody.

During another volatile week, the S&P 500 declined by 2.12%, marking a fifth consecutive week in the red. Nasdaq entered correction territory (down 10% from its peak) after falling 3.23%. In contrast, the Euro Stoxx 50 was broadly stable (+0.08%) and the SMI advanced 2.02%.

Markets will remain focused on the Iran conflict and how it evolves, particularly questions surrounding access to the Strait of Hormuz. Energy prices (and, by extension, inflation expectations) will shape revisions to monetary policy by major central banks. The interest rate trajectory remains the key short-term driver. Rising bond yields are weighing on equity valuations, particularly across growth segments.