[IMG alt="The markets Iran war peak fear may have passed as stocks show muted reactions despite rising oil and the Hormuz blockade. See what analysts say.
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Global financial markets are showing a notably restrained reaction to the latest escalation in the Iran conflict, suggesting that investors may have already priced in much of the geopolitical risk that has shaken markets since the war began.
The U.S. announcement of a naval blockade of the Strait of Hormuz triggered the familiar pattern of surging oil prices, rising bond yields, and a stronger dollar.
But unlike earlier in the conflict, equity markets fell only modestly, with most major Asian benchmarks declining around 1% and U.S. futures also dipping less than 1%.
Analysts say markets have undergone a significant behavioral shift over the course of the conflict, moving from panic-driven selling toward a more measured assessment of risks.
Billy Leung, investment strategist at Global X ETFs, said the restrained market reaction reflects a growing belief that much of Trump’s aggressive rhetoric is rooted in negotiation tactics rather than a signal of unchecked escalation.
“Markets have reached peak uncertainty,” Leung said. “The reaction function is no longer as extreme as before.”
Jun Bei Liu, lead portfolio manager at Ten Cap, echoed that view, pointing to volatility indicators as a signal that the most acute phase of the sell-off may already be behind investors.
Liu suggested that elevated readings in the VIX volatility index earlier in the conflict likely represented the high-water mark of market fear, and that markets are now in a phase of working through the uncertainty rather than reacting to each new headline.
While equity markets have grown more resilient, the energy market continues to respond sharply to each new development.
U.S. crude futures for May delivery jumped more than 8% following the blockade announcement, trading above $104 per barrel. International benchmark Brent crude for June delivery rose more than 7%, approaching $102.
Since the war began, U.S. oil prices have surged more than 55%, creating a sustained inflationary backdrop that is complicating both monetary policy and consumer finances.
The blockade reinforces expectations of tighter energy supplies in the near term, even though the strait had already seen traffic drop to a fraction of normal volumes since the conflict began.
The persistence of elevated oil prices is creating headwinds for monetary policy, as central banks are increasingly reluctant to ease borrowing costs while energy-driven inflation remains elevated.
Yields on the 10-year Treasury have risen significantly since the war started, reflecting both inflationary concerns and reduced expectations for interest rate cuts. The U.S. dollar index has also strengthened as safe-haven demand remains elevated.
Steve Brice of Standard Chartered said higher oil prices push back any realistic prospects for easier monetary policy, keeping pressure on bond yields and the dollar.
He added that these pressures are likely temporary, as the U.S. appears to be seeking pathways toward de-escalation.
One notable divergence from past geopolitical crises is the behavior of gold. Spot gold prices declined despite the heightened tensions, losing around 0.5% as the blockade was announced.
Brice attributed the unexpected weakness to emerging-market central banks selling gold to stabilize their currencies amid the turmoil.
He said demand for bullion should return if Middle East tensions begin to ease, as gold typically reclaims its safe-haven role once currency pressures stabilize.
Despite the near-term volatility, several analysts expressed confidence that the current oil price surge will not be permanent.
Michael Yoshikami of Destination Wealth Management said he expects crude prices to retreat toward $80 per barrel as the U.S. and Iran eventually reach a negotiated resolution, which would quickly unwind the risk premium that has driven prices higher.
Brice added that current stock market positioning actually favors a rally, as many investors remain defensively positioned even as the broader macroeconomic backdrop has not deteriorated as severely as feared. If the conflict begins to de-escalate, equities could rebound quickly as defensive positioning unwinds.
The picture that emerges is one where geopolitical risk still matters but no longer triggers the same wave of panic selling that defined the earliest weeks of the conflict. Markets appear to be settling into a more complex calculus, one where each escalation is weighed against the probability of an eventual diplomatic resolution rather than treated as a signal of open-ended crisis.
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Global financial markets are showing a notably restrained reaction to the latest escalation in the Iran conflict, suggesting that investors may have already priced in much of the geopolitical risk that has shaken markets since the war began.
The U.S. announcement of a naval blockade of the Strait of Hormuz triggered the familiar pattern of surging oil prices, rising bond yields, and a stronger dollar.
But unlike earlier in the conflict, equity markets fell only modestly, with most major Asian benchmarks declining around 1% and U.S. futures also dipping less than 1%.
Investors Are Becoming More Accustomed to Geopolitical Shocks
Analysts say markets have undergone a significant behavioral shift over the course of the conflict, moving from panic-driven selling toward a more measured assessment of risks.
Billy Leung, investment strategist at Global X ETFs, said the restrained market reaction reflects a growing belief that much of Trump’s aggressive rhetoric is rooted in negotiation tactics rather than a signal of unchecked escalation.
“Markets have reached peak uncertainty,” Leung said. “The reaction function is no longer as extreme as before.”
Jun Bei Liu, lead portfolio manager at Ten Cap, echoed that view, pointing to volatility indicators as a signal that the most acute phase of the sell-off may already be behind investors.
Liu suggested that elevated readings in the VIX volatility index earlier in the conflict likely represented the high-water mark of market fear, and that markets are now in a phase of working through the uncertainty rather than reacting to each new headline.
Oil Is Still the Main Pressure Point
While equity markets have grown more resilient, the energy market continues to respond sharply to each new development.
U.S. crude futures for May delivery jumped more than 8% following the blockade announcement, trading above $104 per barrel. International benchmark Brent crude for June delivery rose more than 7%, approaching $102.
Since the war began, U.S. oil prices have surged more than 55%, creating a sustained inflationary backdrop that is complicating both monetary policy and consumer finances.
The blockade reinforces expectations of tighter energy supplies in the near term, even though the strait had already seen traffic drop to a fraction of normal volumes since the conflict began.
Rate Cuts and Bond Yields Under Pressure
The persistence of elevated oil prices is creating headwinds for monetary policy, as central banks are increasingly reluctant to ease borrowing costs while energy-driven inflation remains elevated.
Yields on the 10-year Treasury have risen significantly since the war started, reflecting both inflationary concerns and reduced expectations for interest rate cuts. The U.S. dollar index has also strengthened as safe-haven demand remains elevated.
Steve Brice of Standard Chartered said higher oil prices push back any realistic prospects for easier monetary policy, keeping pressure on bond yields and the dollar.
He added that these pressures are likely temporary, as the U.S. appears to be seeking pathways toward de-escalation.
Gold Behaves Differently This Time
One notable divergence from past geopolitical crises is the behavior of gold. Spot gold prices declined despite the heightened tensions, losing around 0.5% as the blockade was announced.
Brice attributed the unexpected weakness to emerging-market central banks selling gold to stabilize their currencies amid the turmoil.
He said demand for bullion should return if Middle East tensions begin to ease, as gold typically reclaims its safe-haven role once currency pressures stabilize.
Analysts Expect Oil to Fall, Stocks to Recover
Despite the near-term volatility, several analysts expressed confidence that the current oil price surge will not be permanent.
Michael Yoshikami of Destination Wealth Management said he expects crude prices to retreat toward $80 per barrel as the U.S. and Iran eventually reach a negotiated resolution, which would quickly unwind the risk premium that has driven prices higher.
Brice added that current stock market positioning actually favors a rally, as many investors remain defensively positioned even as the broader macroeconomic backdrop has not deteriorated as severely as feared. If the conflict begins to de-escalate, equities could rebound quickly as defensive positioning unwinds.
The picture that emerges is one where geopolitical risk still matters but no longer triggers the same wave of panic selling that defined the earliest weeks of the conflict. Markets appear to be settling into a more complex calculus, one where each escalation is weighed against the probability of an eventual diplomatic resolution rather than treated as a signal of open-ended crisis.
The post Are Markets Past Peak Fear Despite Oil Surge and Hormuz Blockade? appeared first on .
Continue reading...