Two months have passed since the outbreak of the Iran war, and the conflict is reshaping the performance landscape of major global asset classes. A systematic review of key financial assets by Deutsche Bank strategist Jim Reid reveals that while some asset movements align closely with the traditional oil shock playbook, several unexpected divergences have emerged. Unsurprisingly, oil has emerged as the biggest winner, with the Brent crude front-month contract surging 49% over the two-month period. Meanwhile, U.S. assets have significantly outperformed, leveraging the structural advantage of being a net energy exporter, as both the S&P 500 and Nasdaq indices hit new record highs. In contrast, eurozone assets have lagged across the board due to greater energy exposure, with their declines further amplified by a weaker euro when measured in U.S. dollars. Precious metals have delivered the most notable anomaly during this shock—both gold and silver have fallen more than 10% since the conflict began, marking a clear departure from their traditional role as safe havens. Bond markets have also come under pressure, with 10-year government bond yields rising sharply across major global economies.
Oil Leads Gains, Bond Markets Suffer Heavy Losses Oil prices have led the rally, but market expectations suggest the shock will eventually fade. The Brent crude front-month contract has surged 49% over two months, making it the top-performing asset. However, the six-month Brent contract has risen only 25%, and the relatively flat forward curve indicates that investors still view the current energy price spike as a temporary shock rather than a structural shift. U.S. Stocks Hit Record Highs, South Korean Market Surprises on the Upside As a net energy exporter, the U.S. has been relatively insulated from the negative spillover effects of the oil price shock. Coupled with a strong rebound in tech stocks in April, U.S. equities have stood out among major global markets. South Korea’s KOSPI index has also posted gains since the conflict began, with its year-to-date total return in local currency terms exceeding 58%, making it another standout performer amid the geopolitical turmoil. Eurozone Lags Across the Board, Energy Exposure Proves Costly In stark contrast to the U.S., eurozone assets have continued to underperform, with greater reliance on energy imports being a key drag. When measured in U.S. dollars, the decline in eurozone assets has been exacerbated by the depreciation of the euro. Even as markets price in at least two interest rate hikes by the European Central Bank this year, this has failed to meaningfully boost the relative performance of eurozone assets. Precious Metals Fall Unexpectedly, Rate Hike Expectations Suppress Safe-Haven Demand Both gold and silver have declined by at least 10% since the conflict began—a rare occurrence in historical oil shock cycles. Jim Reid offers two explanations for this anomaly: first, both metals were trading near historical highs prior to the conflict, creating inherent downward pressure; second, the repricing of interest rate expectations has weighed on demand for precious metals, as their prices typically move inversely to real interest rates. Overall, while this divergence is unusual, it is not entirely inexplicable. Global Bond Markets Suffer Heavy Losses, Inflation and Fiscal Pressures Drive Yields Higher Bond markets have also suffered significant losses during this period. Over two months, the yield on the UK 10-year government bond rose by 74 basis points, France by 47 basis points, the U.S. by 40 basis points, Germany by 39 basis points, and Japan by 35 basis points. Jim Reid notes that the rise in yields has been driven by two factors: inflationary pressures stemming from the surge in energy prices, and market concerns about further fiscal easing by governments. Notably, before the war broke out, global bond yields were at relatively low levels due to expectations of AI-driven disinflation and fears of job displacement—macro narratives that now seem like a distant memory.
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