Stocks, bonds and commodities: How global markets have traded the Iran war

Core Viewpoint - The ongoing U.S.-Iran war has led to significant volatility across various asset classes, resulting in major losses and bearish sentiment in the markets [1][2]. Equities - Global equities have experienced a severe sell-off during the five weeks of the U.S.-Iran war, with all three major U.S. indices expected to end the month in negative territory [2] - The war's impact on energy and inflation has particularly affected markets in Europe and Asia, with South Korea's Kospi index falling nearly 20% in March due to its vulnerability to energy price shocks [3] - Goldman Sachs has indicated that the "balance of risks has worsened" for equity markets, with an increased probability of stagflation, which historically leads to poor equity performance [4][5] Bonds - Government borrowing costs have risen amid a broad sell-off of developed-market sovereign debt, with bond yields increasing as investors adjust expectations for central bank rate hikes [7][8] - The U.S. and European breakeven curves have surged as markets reprice inflation expectations, with some European bond yields reaching multi-decade highs [10] Currencies - The foreign exchange market has been volatile, with the U.S. dollar index projected to gain around 3% in March, supported by energy-driven stagflation risks [11] - Asian and European currencies are struggling due to higher commodity prices, while Latin American currencies are preferred within the emerging market context [11] Metals - The metals market has seen significant volatility, with gold on track for its worst monthly performance since 2008, influenced by a stronger dollar and rising interest rate expectations [12] - Despite the current decline, there is a bullish outlook for gold, with forecasts suggesting a rebound to USD 6,200 per ounce by the end of June [13] - Aluminum prices are under pressure due to geopolitical tensions affecting supply, while copper markets are influenced by economic pessimism [13] Energy - The energy market is at the center of market volatility, with the Iran war disrupting oil and gas supplies, leading to skyrocketing prices [14] - Euro zone inflation has risen above the European Central Bank's target, with energy inflation expected to hit 4.9% in March, up from a contraction the previous month [14][15] - The rapid increase in oil prices poses a risk of rising living costs for consumers, potentially leading to reduced consumption until clarity on price stability is achieved [15]